Equity Valuation of a Public U.S. Company

Equity Valuation of a Public U.S. Company

Term Project

FIN 4710 – Advanced Investment Analysis

Overview

This course includes a semester-long project with three main objectives: (1) perform a comprehensive analysis of a U.S. public company, (2) write a valuation report based on the target company analysis, and (3) provide an investment recommendation.

Description of the project

In this project, you will perform all steps necessary to complete a valuation analysis of the target company and provide an investment recommendation based on your analysis. Here is an outline of the steps you will need to complete:

1. Sector research – study the economic environment where the company operates with a focus on the industry or sector (e.g. sector performance/trends, industry lifecycle, key players, comparable companies, etc.)
2. Company analysis – perform a comprehensive analysis of the company’s business model as well as its financial performance and position (e.g. business segments, end markets, customers, suppliers, financial performance, capital structure, etc.)
3. Excel-based valuation – using templates of a DCF and comps models, you will “translate” your sector research and company analysis into model inputs (e.g. cash flow projections, exit multiple, market risk, etc.). Your inputs and the model will determine the output data on which you will base your investment recommendation (e.g. target price)
4. Valuation report – using the work from the previous three steps, you will produce a report that contains the key elements of your analysis: industry analysis, company analysis (business and financial profile), valuation methodologies and summary, and investment recommendation.

Teams and target company

You will work in teams of 5 people. The target company your group will be working with is listed below:

Timeline and deadline

You can begin working on the project anytime during the semester. There will be, however, an official project kickoff day (week 10 – refer to the course outline for an exact date). On this day, I will spend some of our class time discussing the project and answering any questions you may have. The final report is due the last day of classes.

Report Outline

(total pages: up to 11 excl. cover page and appendix)

1. Cover page (1 page)
2. Investment summary (1 page)
   1. Investment recommendation
   2. Key catalysts
3. Business description (1 page)
   1. Company overview
   2. Segments
   3. Products/services
   4. Strategy
4. Industry overview & competitive positioning (2 pages)
   1. Industry overview
      1. Industry structure
      2. Key drivers

• Industry trends

1. Competitive positioning (incl. Porter’s five forces & positioning matrix)

5. Financial analysis (2 pages)
   1. Revenue
   2. Key expenses
   3. Margins
   4. Leverage
   5. Operating efficiencies
   6. Cash generation
   7. Capex
   8. Liquidity
   9. (include all relevant financial drivers)
6. Valuation (4 pages)
   1. Summary
   2. Intrinsic valuation (i.e. DCF)
      1. Sales growth
      2. Margins

• FCF projections

1. WACC
2. Terminal value

1. Relative valuation
   1. Peer group (incl. table with peers)
   2. Multiples
2. Risks to the target price (1 page)
   1. Scenario analysis
   2. Sensitivity analysis
3. Appendix (if needed)

Information sources

Thorough the course, you will be presented with a wealth of information sources from which to draw data and perform your valuation analysis. Here is a quick list of some of the main information sources you will be provided with:

• Access to financial data services websites
• Sample reports
• Company’s SEC filings and investor relations reports (e.g. 10K, 10Q, etc.).
• Course discussions and course materials (e.g. slide packs, Excel-based models, etc.).
• Online sources referenced (e.g. Damodaran online http://pages.stern.nyu.edu/~adamodar/).

Please note that all sources used in your report and presentation materials must be cited.