Chapter 18 Equity Valuation Parts 1&2

1

Chapter 18 – Equity Valuation

2

Common Stock - Terms & Concepts

• Equity = ownership. Ownership in a company = stock

• Share of stock = smallest incremental unit of ownership

• Voting rights• Classified stock/dual class shares• Proxy • Claims on residual assets and CFs of firm

3

Amounts in $ millions except per share data

Revenue 1,000 Cost of goods sold 600

Gross profit 400 SG&A 150

Operating profit 250 Interest expense 50

Pretax profit 200 Taxes 80

Net income 120 EPS 1.20 Common stock dividends 60 DPS 0.60

Common shares (MM) 100

4

The value of a share of common stock is derived from its claim on a company’s future dividend stream. Here’s the logic:

1.) The value of any investment is the sum of the present values of its expected cash flow stream.

2.) A dividend is a cash flow.

13

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10 )1(

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tt

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r

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r

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r

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Dividend Discount Model (DDM)

5

DDM - Constant Growth in Dividends

If dividends grow at some constant rate, g, then:

....)1(

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0 k

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Which reduces to:

gk

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6

Steady State stock just paid a dividend per share of $3.81. The dividend is expected to grow at 5% forever (in perpetuity). The required rate of return for Steady State stock is 12%.

• What is the current value per share of Steady State stock?

• One year from now, what is the expected price per share of Steady State?

• If you purchase one share of Steady State now and sell it one year from now, what would be your expected HPR? Dividend yield? Capital gains yield?

% xgP

Dx

P

PPDHPR 100%100

)(

0

1

0

011


7

Valuation Scenarios for Steady State Stock. D0 = 3.81

Long-term Growth Rate

k

3% 5% 6%

10% $56.06 $80.01 $100.96

12% $43.60 $57.15 $67.31

14% $35.66 $44.45 $50.48


8

A Brief Review of CAPM

• Only non-diversifiable (systematic) risk matters to investors

• Non-diversifiable risk is measured by an asset’s beta coefficient, β

• An asset’s beta is a relative measure of systematic risk – relative to a broad based portfolio.

• Investors demand compensation for time value of money and risk, but only non-diversifiable risk.

𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑𝑟𝑎𝑡𝑒𝑜𝑓 𝑟𝑒𝑡𝑢𝑟𝑛=𝑟 𝑓 +𝛽𝑥 (𝐸 (𝑟𝑚) −𝑟 𝑓 )

9

NWE Stock Valuation: Constant Growth in Dividends

Example: Consider Northwestern Corporation (NWE), a public utility company.

• The company paid a dividend of $1.84 per share last year which you expect to grow at 3% in perpetuity.

• NWE has an equity beta of 0.70. The risk-free rate is 3% and the expected return on the market portfolio is 9%.

What is your estimated intrinsic value of one share of NWE stock?

10

Consider a company with the following expected per share dividend stream:

Time (year)

1 2 3 4 5

Dividend $3.00 $4.00 $4.50 $4.95 $5.20

Y/Y growth

- 33% 13% 10% 5% and on

In year 5 dividends are expected to stabilize and grow at 5% annually. If k = 12%, what is the value of one share of stock?

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21

1

0 )1(....

)1()1()1( ttk

Dk

Dk

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Multistage DDM/Varying Growth in Dividends

11

Time (year)

1 2 3 4 5

Dividend $3.00 $4.00 $4.50 $4.95 $5.20

Y/Y growth

- 33% 13% 10% 5% and on

)1()1()1()1()1( 44

44

33

22

11

0 kP

kD

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12

Time 0 1 2 3 4 5

Dividend $3.00 $4.00 $4.50 $4.95 $5.20

PVD1 $2.68

PVD2 $3.19

PVD3 $3.20

PVD4 $3.15

P4

PVD5→∞(PV P4) +$47.21

Stock Value $59.43


13

Value and Investment Opportunities: Growth Prospects, Inc.

k = 12.5%, EPS1 = $5, DPS1 = $5, ROE = 15%

Value per share under current dividend policy?

What if the company only pays out 40% of its earnings and retains and reinvests 60%? Value per share?

Invested equity = $100 million.

Shares outstanding = 3 million

Note: g = b x ROE, and b = (1-(DPS/EPS)) = retention ratio

bROEk

bEPS

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14

k = 12.5%, EPS = $5, DPS = $5, ROE = 12.5%

Value per share under current dividend policy?

What if the company retains and reinvests 60% of its earnings? Value per share?

Invested equity = $100 million

Shares outstanding = 3 million

Recall: g = b x ROE, and b = (1-(DPS/EPS)) = retention ratio

Value and Investment Opportunities: Cash Cow, Inc.

bROEk

bEPS

gk

DPSV

)1(11

0

15

Summary: Growth Prospects vs. Cash Cow

k 12.5% 12.5% k 12.5% 12.5%ROE 15.0% 15.0% ROE 12.5% 12.5%EPS1 $5.00 $5.00 EPS1 $5.00 $5.00b 0.00 0.60 b 0.00 0.60DPS1 $5.00 $2.00 DPS1 $5.00 $2.00Growth 0.0% 9.0% Growth 0.0% 7.5%Price/Share $40.00 $57.14 Price/Share $40.00 $40.00

Growth Prospects Cash Cow

Under what circumstances does growth enhance value?

16

Growth Prospects, Inc., Revisited…

k = 12.5%, EPS = $5, DPS = $5, ROE = 15%

Value with no retention of profits (b=0), $40

Value with 60% retention of profits (b=0.60) $57.14

Price = No-growth value per share + PVGO

PVGOk

EP 1

0

$57.14 = $40 + $17.14

What about Cash Cow, Inc? PVGO?

17

Present Value of Growth Opportunities (PVGO)

Company Price2015 EPS

Estimate

Equity Beta

k EPS1/k PVGO

Republic Services $40.11 $2.05 0.70 7.9% $25.95 $14.16

Waste Management

$49.93 $2.54 0.79 8.5% $29.78 $20.15

Waste Connections

$47.62 $1.96 0.85 9.0% $21.90 $25.72

Assumes a risk-free rate of 3% and a market risk premium of 7%

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PVGO (2)

What is the value of the equity at t=0 without vs. with Project Z? NPV of Z?

Company InformationD1 (millon) $50.0Growth 0.0%Cost of equity 10.0%Shares (millions) 10.0

Company DividendsYear 0 1 2 … ∞

Dividend $50.0 $50.0 $50.0 $50.0

Project ZYear 0 1 2 … ∞

Cash flow ($50.0) $6.0 $6.0 $6.0

Company Dividends - Project Z AcceptedYear 0 1 2 … ∞

Dividend $0.0 $56.0 $56.0 $56.0

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Free Cash Flow to Equity (FCFE)

FCFE = net income + depreciation - ∆CA + ∆CL – capital expenditures + new debt issuances – debt principal repayments

FCFE = net income + depreciation - ∆working capital - capital expenditures + net new borrowing

FCFE = CFO - capex + net new borrowing

• “Extractable” cash. Cash flow amount available or “free” for distribution to shareholders → the implied dividend!

• Actual dividends often differ from FCFE though.

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Free Cash Flow to Equity (FCFE)

• For valuation use TVM formulas, just use FCFE for cash flow (or equity value) items and k for discount rate.

1

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22

11

)1(....

)1()1()1( ttop k

FCFE

k

FCFE

k

FCFE

k

FCFEE

• In theory, valuation using DDM and discounted FCFE models will produce the same value. Why?

• If implemented with internally consistent assumptions, FCFE, FCFF and DDM models produce the same value of equity!

Total value of equity = Eop + value of non-operating assets

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Free Cash Flow to Equity (FCFE) Valuation

Year 1 2 3 4 5FCFE $65.89 $58.13 $79.53 $97.92 $110.76

• Phoenix, Inc. has the following projected free cash flow stream. (Amounts in millions.)

• After year 5, FCFE is expected to grow annually at 4% indefinitely.

• Phoenix has interest-bearing debt with a market value of $1,150 million and a target D/V for EV of 0.48.

• It also has $160 million of excess cash on hand and owns undeveloped land it will never use with an estimated after-tax market value of $25 million.

• The company has a WACC of 7.5%, a 11.1% cost of equity and 30 million common shares outstanding.

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Free Cash Flow to Equity (FCFE) Valuation, Phoenix, Inc., Continued

Terminal Growth, Year 6 and on 4.0%Cost of Equity Capital 11.10%

0 1 2 3 4 5FCFE (MM) $65.89 $58.13 $79.53 $97.92 $110.76Terminal Value $1,622.40PV of FCFE $59.31 $47.09 $57.99 $64.27 $65.44Total PV of FCFE $294.10PV of Terminal Value $958.49Equity in Operating Assets $1,252.59Non-Operating Assets $185.00Total Equity Value $1,437.59Shares Outstanding (MM) 30Value Per-share $47.92

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Share Repurchases: The Dividend Alternative

Consider Midnight Oil, Inc.

• Year 1 total dividends (FCFE) expected to be $50 million and grow by 4% in perpetuity

• The cost of equity (required rate of return) is 12%• There are 20 million shares outstanding• What is the per-share equity value at t=0? Expected

DPS1? Expected per share equity value at t=1? • Assume expectations are met. Holding period return?• Repeat steps above, but value the stock at t=1 just

before dividends disbursed. • Instead of paying $50 million dividends at t=1, the $50

million is used to repurchase shares at t=1. HPR? Composition of HPR?

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Share Repurchases: Continued

Time 0 1Expected DPS $2.50Share Value Before Dividend $35.00Share Value After Dividend $31.25 $32.50Holding Period Return 12.0%Dividend Yield 8.0%Capital Gain 4.0%

Time 0 1FCFE $50.00Equity Value Before Distribution $625.00 $700.00Share Value Before Distribution $31.25 $35.00Excess Cash on Hand $0.00 $50.00Repurchased Shares (MM) - 1.429Shares (MM) 20.000 18.571Equity Value After Distribution $650.00Share Value After Repurchase $35.00Holding Period Return 12.0%Dividend Yield 0%Capital Gain 12.0%

($ amounts in millions except per-share amounts.)

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Share Repurchases: The Dividend Alternative

• Viewing only dividends and ignoring share repurchases (if any) will understate the amount of cash that is actually being returned to shareholders. Traditional Payout ratios (Dividends/Net income) will be misleading.

• Modified payout ratio = (cash dividends + share repurchases)/FCFE: a more comprehensive measure of distributions/potential distributions.

• Let’s look at a few companies’ net income, dividends, payout ratios, share repurchases, FCFE and modified payout ratios…

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MICROSOFT CORPORATION($ MILLIONS)

2010 2011 2012 2013

Net income 18,760 23,150 16,978 21,863 Cash Dividends (4,578) (5,180) (6,385) (7,455) Traditional Payout ratio 0.24 0.22 0.38 0.34

CFO 24,073 26,994 31,626 28,833 Capital Expenditures (2,222) (2,426) (2,305) (4,257) Net borrowing 190 5,960 - 3,537 FCFE 22,041 30,528 29,321 28,113

Repurchase of Common Stock (8,958) (9,133) (3,116) (4,429) Cash Dividends (4,578) (5,180) (6,385) (7,455) Repurchases + Dividends (13,536) (14,313) (9,501) (11,884)

(Repurchases + Dividends)/FCFE 0.61 0.47 0.32 0.42 Fraction of FCFE paid as dividends 0.21 0.17 0.22 0.27 Fraction of FCFE used for repurchases 0.41 0.30 0.11 0.16

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EXXON MOBIL CORPORATION($ MILLIONS)

2010 2011 2012 2013

Net income 31,398 42,206 47,681 33,448 Cash Dividends (8,498) (9,020) (10,092) (10,875) Traditional Payout ratio 0.27 0.21 0.21 0.33

CFO 48,413 55,345 56,170 44,914 Capital Expenditures (26,871) (30,975) (34,271) (33,669) Net borrowing (6,210) 1,957 (2,908) 11,604 FCFE 15,332 26,327 18,991 22,849

Repurchase of Common Stock (12,050) (21,131) (20,875) (15,948) Cash Dividends (8,498) (9,020) (10,092) (10,875) Repurchases + Dividends (20,548) (30,151) (30,967) (26,823)

(Repurchases + Dividends)/FCFE 1.34 1.15 1.63 1.17Fraction of FCFE paid as dividends 0.55 0.34 0.53 0.48Fraction of FCFE used for repurchases 0.79 0.80 1.10 0.70

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Free Cash Flow (FCF or FCFF)

• Can be thought of as cash flow amount available or “free” for distribution to all capital providers.

• FCFE if the company was all-equity financed.

• For valuation use TVM formulas, just use FCFF for cash flow (or value) items and WACC for discount rate.

FCFF = EBIT x (1-tax rate) + depreciation - ∆net working capital – capital expenditures

FCFF = CFO + net interest expense x (1-tax rate) – capital expenditures

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12

21

1assets operating

111 tt

t

WACC)(

FCFF...

WACC)(

FCFF

WACC)(

FCFFEVV

• This method produces the value of the operating assets → the enterprise value (EV).

• Must also add the value of any non-operating assets!

Value of firm = EV + value of non-operating assets = value of debt + value of preferred equity + value of

common equity

Free Cash Flow (FCFF) Valuation

• For total common equity value, subtract market value of interest-bearing debt and any preferred stock.

• Divide total equity value by number of common shares

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Year 1 2 3 4 5FCFE $65.89 $58.13 $79.53 $97.92 $110.76 FCFF $40.00 $20.00 $55.00 $85.00 $105.00

• Phoenix, Inc. has the following projected cash flow streams. (Amounts in millions.)

• After year 5, FCFE and FCFF is expected to grow annually at 4% indefinitely.

• Phoenix has interest-bearing debt with a market value of $1,150 million and a target D/V for EV of 0.48.

• It also has $160 million of excess cash on hand and owns undeveloped land it will never use with an estimated after-tax market value of $25 million.

• The company has a WACC of 7.5%, a 11.1% cost of equity and 30 million common shares outstanding.

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Terminal Growth, Year 6 and on 4.0%WACC 7.50%

Year 0 1 2 3 4 5FCFF (MM) $40.00 $20.00 $55.00 $85.00 $105.00Terminal Value $3,120.00PV of FCFF $37.21 $17.31 $44.27 $63.65 $73.14Total PV of FCFF $235.58PV of Terminal Value $2,173.26Enterprise Value $2,408.84Non-Operating Assets $185.00Firm Value $2,593.84Market Value of Debt $1,150.00Total Equity Value $1,443.84Shares Outstanding (MM) 30Value Per-share $48.13

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FCFE and FCFF Valuation: Deriving Cash Flows

-See handout or posted Excel File entitled “Snack Foods”

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The Price-Earnings (P/E) Ratio

• Recall Growth Prospects, Inc: EPS1=$5, ROE=15%, b=0.6, k=12.5%

P=$57.14, EPS1=$5, P/E =11.4

• Recall Cash Cow, Inc: EPS1=$5, ROE=12.5%, b=0, k=12.5%

P=$40, EPS1=$5, P/E=8

11

0 1

E

PVGO

kE

P

kE

PVGO

kE

P

11

0 11

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FedEx average annual EPS growth = 10.2%,Con Ed = 1.6%

Average P/E, FedEx = 17.4, Con Ed = 15.7

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bROEk

bEPSP

)1(1

0

Long-run Stable Growth P/E

bROEk

b

EPS

P

)1(

1

0

A B C D ERetention ratio 0.20 0.20 0.40 0.40 0.60ROE 15% 15% 15% 12% 12%Growth 3.0% 3.0% 6.0% 4.8% 7.2%Cost of equity 10% 12% 12% 12% 12%P/E1 11.4 8.9 10.0 8.3 8.3

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P/E for High, Non-Constant Growth Companies?

Same principles apply to high growth companies as for stable growth companies:

• Price = present value of all expected dividends

• Compare current price to this (or next) year’s forecast earnings

Cost of Equity 10.0%Invested Equity, EOP $100 $120 $144 $173 $204 $237 $270 $302 $332 $359 $373Years Hence 0 1 2 3 4 5 6 7 8 9 10

2014 2015(E) 2016(E) 2017(E) 2018(E) 2019(E) 2020(E) 2021(E) 2022(E) 2023(E) 2024(E)

ROE, in Aggregrate 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%Retention ratio 1.00 1.00 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.20

Net Income $20.0 $24.0 $28.8 $34.6 $40.8 $47.3 $53.9 $60.4 $66.4 $71.8Growth in Net Income 20.0% 20.0% 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0%Retention $20.0 $24.0 $28.8 $31.1 $32.6 $33.1 $32.4 $30.2 $26.6 $14.4Dividend $0.0 $0.0 $0.0 $3.5 $8.2 $14.2 $21.6 $30.2 $39.9 $57.4

Equity Value $463.2 $509.6 $560.5 $616.6 $674.8 $734.1 $793.3 $851.1 $906.0 $956.7 $995.0P/E1 ratio 23.2 21.2 19.5 17.8 16.5 15.5 14.7 14.1 13.6 13.3 13.3Y/Y HPR 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%

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P/E Ratios for Different Industries: 9/12/2012

38

Valuation by P/E Multiple

The rationale: Similar companies should have similar P/E ratios, or, equivalently should sell for the

same multiple of its earnings.

Similar in what ways? Similar in ways we’ve already encountered:

• Same discount rate (risk or beta)

• Same future (ST & LT) investment opportunities or growth opportunities

• Etc., etc….

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Industry P/E

Waste Management Industry

Company PriceEPS1

EstimateP/E1

EPS2 Estimate

P/E2

Republic Services $40.11 $2.05 19.57 $2.21 18.15

Waste Management $49.93 $2.54 19.66 $2.74 18.22

Waste Connections $47.62 $1.96 24.30 $2.16 22.05

Casella Waste Systems $6.64 ($0.13) NM $0.01 664.00

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𝐸𝑉=𝐹𝐶𝐹 1

𝑊𝐴𝐶𝐶−𝑔=𝐸𝐵𝐼𝑇 1 𝑥(1 −𝑇 )(1 −𝑅𝑅 )𝑊𝐴𝐶𝐶−(𝑅𝑅𝑥𝑅𝑂𝐼𝐶)

Enterprise Value Multiples for Perpetuities

𝑅𝑅=(1−𝐹𝐶𝐹 1

𝐸𝐵𝐼𝑇 1 (1 −𝑇 ) )→ (1 −𝑅𝑅 )=𝐹𝐶𝐹 1

𝐸𝐵𝐼𝑇 1 (1 −𝑇 )

𝑔=𝑅𝑅𝑥𝑅𝑂𝐼𝐶

𝐸𝑉𝐸𝐵𝐼𝑇 1

=(1−𝑇 ) (1−𝑅𝑅 )

𝑊𝐴𝐶𝐶−(𝑅𝑅𝑥𝑅𝑂𝐼𝐶)

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𝐸𝑉𝐸𝐵𝐼𝑇 1

=(1−𝑇 ) (1−𝑅𝑅 )

𝑊𝐴𝐶𝐶−(𝑅𝑅𝑥𝑅𝑂𝐼𝐶)

F G H I JTax rate 40% 40% 40% 40% 35%Retention Rate 0.30 0.30 0.40 0.40 0.40ROIC 12% 15% 15% 15% 15%Growth 3.6% 4.5% 6.0% 6.0% 6.0%WACC 10% 10% 10% 9% 9%EV/EBIT 6.6 7.6 9.0 12.0 13.0

Enterprise Value Multiples for Perpetuities

42

Example: Using the EV/EBIT Multiple

Implicit assumption: Similar companies should trade at similar valuation multiples.

$ millions

2015 Projected

EBIT EV EV/EBIT1

Interest-Bearing

DebtEquity Value

Shares (mm)

Value per

share

Home Décor, Inc. $60 $480 8.0 $25 $455 10.0 $45.5Fancy Furniture, Inc. $160 $1,248 7.8 $150 $1,098 36.0 $30.5Sofas and Beyond! $95 $798 8.4 $60 $738 29.0 $25.4Best Bedrooms Corp. $120 ? ? $8 ? 15.0 ?

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Valuation Multiples for Multi-Stage Growth Companies

Tax rate 40% WACC 10.0% Invested Capital $100 $130 $169 $220 $286 $366 $461 $544 $603 $627 $653

2015(E) 2016(E) 2017(E) 2018(E) 2019(E) 2020(E) 2021(E) 2022(E) 2023(E) 2024(E)

ROIC 30% 30% 30% 30% 28% 26% 24% 22% 20% 20%Retention 1.00 1.00 1.00 1.00 1.00 1.00 0.75 0.50 0.20 0.20 EBIT $50.0 $65.0 $84.5 $109.9 $133.3 $158.4 $184.3 $199.3 $201.1 $209.2EBIT x (1-T) $30.0 $39.0 $50.7 $65.9 $80.0 $95.1 $110.6 $119.6 $120.7 $125.5Reinvestment $30.0 $39.0 $50.7 $65.9 $80.0 $95.1 $82.9 $59.8 $24.1 $25.1FCF $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $27.6 $59.8 $96.5 $100.4 Growth in EBIT n/a 30% 30% 30% 21% 19% 16% 8% 1% 4%Growth in FCF n/a n/a n/a n/a n/a n/a n/a 116% 61% 4% Enterprise Value $792.6 $871.9 $959.1 $1,055.0 $1,160.5 $1,276.5 $1,404.2 $1,517.0 $1,608.9 $1,673.3 EV/EBIT 15.9 13.4 11.4 9.6 8.7 8.1 7.6 7.6 8.0 8.0 EV/EBIT x (1-T) 26.4 22.4 18.9 16.0 14.5 13.4 12.7 12.7 13.3 13.3

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Why Use EV Multiples?/Problem(s) with P/E

$ millions All EquityDebt

FinancingEBIT $66.7 $66.7Interest $0.0 $12.0EBT $66.7 $54.7Taxes @ 40% $26.7 $21.9NI $40.0 $32.8EPS $2.00 $2.96Shares (mm) 20.00 11.07Equity $400 $248Equity/share $20.0 $22.4Debt @ 6% $0.0 $200EV $400 $448EV/EBIT 6.0 6.7P/E 10.0 7.6

Assume level perpetuity. Capex = depreciation. No change in NWC.ru = 10%.

re = 13.23%.

45

Why Use EV Multiples?/Problem(s) with P/E

$ millions ABC XYZEV $800 $1,152EBIT $83.3 $120.0Equity in earnings of affiliates $0.0 $15.0Net income $50.0 $85.80Excess cash $0.0 $200.0Investments in affiliates $0.0 $300.0Debt $0.0 $0.0Equity $800 $1,652EV/EBIT 9.6 9.6P/E 16.0 19.3

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Other Common EV Multiples

𝐸𝑉𝐸𝐵𝐼𝑇𝐷𝐴1

𝐸𝑉𝑅𝑒𝑣𝑒𝑛𝑢𝑒1

𝐸𝑉𝐼𝑛𝑣𝑒𝑠𝑡𝑒𝑑𝐶𝑎𝑝𝑖𝑡𝑎𝑙

𝐸𝑉𝐸𝐵𝐼𝑇𝐷𝐴2

𝐸𝑉𝑅𝑒𝑣𝑒𝑛𝑢𝑒2

47

Example: Using the EV/EBITDA Multiple

$ millions

2015 Projected EBITDA


Current Debt

Excess Cash

Shares (mm)

Value per share

Brothers Trucking $105 $111 $80 $20 20.0 $24.83Coast to Coast Transport $38 $41 $5 $75 26.0 $10.67Long Haul Trucking $185 $194 $500 $90 35.0 $14.93Continental Logistics $60 $64 $8 $50 18.0 ?

48

Example: Using the EV/EBITDA Multiple

$ millions



Interest-Bearing

Debt

Excess Cash

Shares (mm)

Value per share

Brothers Trucking $105 $111 $80 $20 20.0 $24.83Coast to Coast Transport $38 $41 $5 $75 26.0 $10.67Long Haul Trucking $185 $194 $500 $90 35.0 $14.93Continental Logistics $60 $64 $8 $50 18.0 ?

$ millionsEquity EV EV / EBITDA 1 EV / EBITDA 2

Brothers Trucking $497 $557 5.3 5.0Coast to Coast Transport $277 $207 5.5 5.1Long Haul Trucking $522 $932 5.0 4.8

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Example: Combining Multiples and DCF$ millions 2015 (E) 2016 (E) Comparable Multiples 2015 (E) 2016 (E)EBITDA $27.1 $28.0 EV/EBITDA 7.0 6.0EBIT $20.1 $20.8 EV/EBIT 9.3 7.7EPS $10.4 $10.8 P/E (Oper. Earnings) 15.0 11.9

Y/Y GrowthEBITDA 18.4% 3.4%EBIT 15.2% 3.3%EPS 12.9% 3.8%

Current Value Based on Valuation MultipleValue 2015 (E) 2016 (E)Enterprise (EV/EBITDA) $189.7 $168.1 Excess Cash $12.5Enterprise (EV/EBIT) $187.0 $159.9 Interest-Bearing Debt $48.0Equity (operating) (P/E) $155.4 $128.0 Shares (mm) 10.00

Current Per-share Value Based on MultipleValuation Multiple 2015 (E) 2016 (E) Value per-shareEV/EBITDA $15.42 $13.26 Max $16.79EV/EBIT $15.15 $12.44 Min $12.44P/E $16.79 $14.05 Mean $14.60DCF $15.06 Median $15.06

Chapter 18 Equity Valuation Parts 1&2

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Transcript of Chapter 18 Equity Valuation Parts 1&2