STOCK VALUATION PROJECT

OVERVIEW

The project is an exercise in stock valuation. Working in groups, you will pick a company and estimate the value of its stock using the methods we've discussed in class. The project has two parts:

(1) You'll estimate the company's beta by doing a regression analysis of the company's stock returns compared to those of the market. This will involve finding and downloading the needed data from the internet, using Excel to perform a regression analysis, evaluating the reasonableness of the result and considering any issues or adjustments that need to be addressed.

(2) You'll research the company and its industry and develop your estimate(s) of the value of the company's stock. You'll use your beta estimate and apply the three major methods we've discussed in class:

(a) Dividend discount model

(b) Free cash flow

(c) Multiples.

You'll compare the estimates you get from these methods with each other and with the stock's current market price and indicate what you conclude about the value of the company's stock.

The company you choose must be a publicly traded dividend-paying company for which there is a current report in Value Line.

Value Line is available through the library; you can access Value Line online through the library's website (in the "Databases A - Z" category). (We'll be using General Electric as an example in class, so your company choice should be other than General Electric.)

Brief paper (five pages maximum):

• Overall assessment of the company: Provide an assessment of the company and its industry, including the outlook for profitability and growth.

• Key factors relevant to valuing the company: Discuss the factors which you think are most important in determining the company's value and what you assumed about those factors.

These two part is what we need to deal with.

• Discussion of valuation results: Referring to a summary exhibit (see below), discuss the results of your valuations and what you conclude about the company's value. Do you think it's a good investment? Why/why not?

Exhibits showing your analysis (see next page for details):

1: Summary exhibit showing results of the different valuation methods, with dot points summarizing your conclusions

2: Beta, kE and WACC results

3: Dividend discount model valuations

4: Free cash flow to the firm (FCFF) valuation

5: Multiples valuation