FINC 325 Course Project
Spring 2017
Equity Valuation
Project Description
• This project is designed to apply the valuation techniques we learn in class on companies in the real world.
• It is a group project. Each group will choose an industry (or be assigned) and each group member will value one company in the industry. The group will work together to conduct the industry-level and macro-level analysis.
• The project analysis is due in four parts:
o Approximately two months in, the industry and list of companies along with profiles of each should be handed in
o Approximately three months in, the macro & industry analysis should be handed in
o DCF and comparables for each firm should be handed in two weeks prior to presentations
o Group presentations of valuations at end of semester
Step 1: Pick the companies and create profiles
• Students will pick an industry (or be assigned one) from the S&P NetAdvantage industry list: http://www.netadvantage.standardandpoors.com.ezproxy.stthomas.edu/NASApp/NetAdvantage/loadIndustrySurvey.do?task=loadIndustriesPage
• Pick a group of companies (one for each person in the group) that belong to the group’s industry
• Create a company profile for each company
Step 2: Macro & Industry Analysis
Each member of the group will assist in developing an analysis of the U.S./global macro economy including future prospects. Similarly will the groups conduct an industry analysis. This section will be handed in to the instructor who will review and return the analysis with suggestions as to the overall quality and areas for improvement.
Step 3: Company Valuation
3.1.Value the stock in each company using a Dividend Discount Model
• Assess how long it will take for your company to move from the (short-term) high-growth state to the (long-term) stable state.
• For the short-term growth, use the growth estimate from the spreadsheet provided on blackboard
• For the long-term growth, use g=6%
• Discuss whether it is likely for the parameters affecting the discount rate to change between the high-growth and stable states. If yes, factor those changes into your valuation
• How sensitive are your final estimations to changes in your assumptions
3.2. Show the alternative company valuation using DCF method (optional)
3.3. Comparables
• Prepare a list of “comparable” companies, using criteria that you think are appropriate
• Choose a multiple that you will use in comparing firms across the group. (You might have to try a number of multiples out before making this choice). Work-with the following multiples: P/E, P/S, M/B of equity
• Evaluate your company against the comparable firms using the multiple that you have chosen for your valuation. That is, based on the average (or median) value of your comparables – determine what should be the price (P) of your company
The results of Step 3 and Step 4 will be combined and handed in to the instructor who will review and make suggestions for improvement.
Step 4: Final Value Estimate and Recommendation
• Consider the values you have obtained from DDM (or discounted cash flow) and relative valuation models.
o How would you reconcile the different estimates of value?
o Make a final recommendation on the stocks in your group.
Each group will make a presentation to the class that will review the industry and firms, discuss the analysis of each, and provide recommendations. Parameters for the presentation and final report (to be handed in to instructor by the last day of class) will be provided to teams in a timely manner.
Students will complete the project extensively using excel and need to demonstrate high degree of excel competency.
Grading Rubric
Students will receive grades on their preliminary work submitted early through the semester. For each preliminary submission (total of 3) students will receive a grade of 2 for performance below average, grade of 4 for average and grade for 6 for performance above average. The rest of the points of the course project (82) will be based on the final submission. Here is the distribution of points:
Preliminary submissions:
Part 1 6 points
Part 2 6 points
Part 3 6 points
Total 18 points
Final submission points distribution:
Macro & Industry Analysis – 18 points
Each Company 18 pts (10 pts for DDM(DCF) and 8 pts for comparables) 54points
Written Style 5points
Excel Competency 5 points
Total Points of Final submission 82 points
Total points on the project:
Preliminary submissions 18 points
Final Submission 82 points
Total points on the project 100 points
Summary of project timeline
Task Deadline
Select groups members, industry and a company for each member of the group March16
Submit part 1 of the project April04
Submit part 2 of the project April 11
Submit part 3 of the project April 18
Revise your preliminary submissions based on instructor’s comments Apr 25 – May 01
Class presentations of your project May 2 – May 11
Final project due May 18, 10:30 am
General Mills, Inc.
General Mills, Inc., is one of the America’s largest multinationals that deals with the processes of manufacturing and marketing branded consumer foods that are later sold through retail stores. The company was founded in the year 1928 after Washburn-Crosby President James Ford Bell gave directions for his company to merge with a total of other different 26 mills. A chief executive officer who also happens to be the chairman of board heads the company with is or she vice being the Executive vice president. The company has an institutional holding of an approximated 71 percent with a total of 1,270 shareholders. Additionally, the total number of shares that are owned by the holders total to approximately 4.09 million shares.
Products
The company deals with different products including baking products, cereals, pastries, Ice cream, meals, and fruits. Additionally, the company also offers Pizza, snacks, soups, spices, pasta, yogurt, and vegetables to its customers from within the United States and in other different parts of the world.
Main competitors
The key company competitors for this company include Kellogg Company, Seneca Foods Corporation, and Danone. Other competitors include Amira Nature Foods, Amplify Snack Brands, American Lorain Corporation, and the Archer-Daniels-Midland Company.
Important news that might affect performance
In the month of March, the company announced its results for the third quarter and they were in line with the expectations of the company as it tries to keep itself on track to deliver the guidance that was updated in the month of February.
Did the company issue dividends?
The company declared its dividends at the prevailing rate of $ 0.48 per share payable May 1, 2017. It is important to note that the current annualized dividend rate of $ 1. 92 per share represent an incline of 8% over the yearly dividend of $1.78 for the fiscal year that ended in 2016.
Tyson Foods, Inc.
Tyson Foods, Inc., is an American Multinational corporation that has its headquarters in of Springdale, Arkansas in the United States (Datamonitor (Firm), 2000). The company was founded in the year 1935 and it has its dealings in the food industry and it has been termed as the world’s biggest processor as well as marketer of pork, beef, and chicken. Donald J. Tyson and John W. Tyson founded the company (Datamonitor (Firm), 2000). Additionally, the company is always managed by a board of directors with the activities of the entire organization being headed by a chief executive officer.
Products
To serve its customers better, the company offers a number of products to its customers with some of the key products that are offered by the company including fresh and frozen chicken, live chicken and chicken allied products (Datamonitor (Firm), 2000). The company also sells animal hides and a variety of beef products as well as pork products. In the company’s prepared foods segment, some of the important products that are sold by the company include snacks, dessert, Pizza, and vegetable products that are sold to different customers who are loyal to the company from both within the United States and outside the country.
Main Competitors
Some of the notable company competitors include amongst others, the Pilgrims pride corporation, Smithfield Foods Inc, and the Cargill Incorporated. Other notable companies that compete with this company include Hormel Foods, Leucadi National Corporation, and Industrias Bachoco, all which serve almost the same market with products that are almost similar (Datamonitor (Firm), 2000).
Important News
Over the last year, the company has continued to perform well as it has delivered record second-quarter operating income and return of sales. The sales for the company have been increasing in key retail product lines. The performance has been motivated by a decrease in the cost of input in the production of the company.
Dividends
The company announced its quarterly dividends on 13ths February 2017. Additionally, the company is planning to offer to its stockholders a dividend of about 0.225 per share on June the 15th, 2017. It is important to note that this represents a $0.90 dividend of a yearly basis and a dividend yield of 1.38%.
Nestle Inc.,
Nestle Inc., company is a transnational food and drink company that has its headquarters in Vevey, Vaud, Switzerland. Presently, the company has been termed as the biggest food company in the whole world measured by the revenues and other metrics of the company (The Nestle Company, Inc, n.d). The company was founded in the year 1866 with common mergers of the two companies that made the present day Nestle company happening between 1901 and 19189. The company is run by a board of directors that makes sure that all the operations of the company are run effectively and appropriately with the chief executive officer of the company overseeing all the operations of the company. The estimated number of shareholders in the company is estimated to be at 3 billion.
Products
Some of the notable products that are offered by the company include baby food, bottled water, breakfast cereals, tea, coffee, pet foods, frozen foods, and snacks (The Nestle Company, Inc, n.d). Other important products offered by the same company include confectionery, dairy products and medical foods among other food products that are served to different customers from all over the world.
Competitors
The operations of the company have not been without any competition over the years with some of the most notable competitors of the company being Conagra Brands Inc, Mars incorporated, and Mondelez international, Inc (The Nestle Company, Inc, n.d). All these companies offer products that are almost similar to the products that are offered by the company thus forming its key competitors.
Important News
Nestle Inc., USA is moving its headquarter offices from the Los Angeles area to Virginia and this is expected to oversee the growth of the company in the region. The relocations are meant to make the company move closer to its stakeholders and customers.
Dividend Issue
The company issued its dividends at a rate of 2.95 percent and this can be seen as an increase in the company’s dividend over time. The rates are expected to increase in the near future as a result of the company’s operations in the emerging markets.
References
Datamonitor (Firm). (2000). Tyson Foods, Inc. New York, NY: Datamonitor.
General Mills, Inc, Louis Harris and Associates, Yankelovich, & Skelly and White, inc. (1975). The General Mills American family report. Minneapolis: General Mills.
The Nestle Company, Inc. (n.d.). Chocolate. S.L.: Author.
Investment Finance Analysis
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University
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Industry description
Nestle and Tyson Foods
Nestle is one of the largest transnational food and beverage companies in Switzerland with its headquarters being at Vevey, Vaud. The company is termed as the largest company in the whole world as measured by the company revenues and other important metrics (Nestle Australia, 2000). On the other hand, Tyson Foods is one of the greatest American multinational corporation that has its operations headquartered in Springdale, Arkansas. The company focuses its operations in the food industry and it has been termed as the world’s largest processor and marketer of beef, chicken and pork (Nestle Australia, 2000).
It is important to note the two companies are in the food industry and they are involved in distributing different food products to the different customers from different parts of the world. The two firms are both leaders in the industry from their respective countries based on different parameters (Perocchi, Wysocki, Kepner, & University of Florida, 2000). Additionally, the operations of these companies in the international market are determined by several factors that affect the economics of the countries that these companies operate in. Both the political and economic factors from the countries where the companies operate in tend to affect their operations significantly.
How global economy affects the food industry
The global economy affected the food industry as well as the companies indicated above in a number of ways. As such, some of the important ways through which the global economy affects the food industry include the following (Nestle Australia, 2000).
Food inflation
Global economy greatly impacts the price of foods in the food sector as the industry is highly affected by slight changes in the supply and the demand for food products and raw materials from all over the world (Perocchi, Wysocki, Kepner, & University of Florida, 2000). The prices of the raw materials that are used in this industry are greatly affected by global economy and at some point, it may bring about inflation in the prices of the products produced by the companies in the food industry.
Cost of supply and logistics
One of the ways through which global economy affects the industry is through the cost of supplies and logistics that are important to make the industry operational and successful. Global economy affects the cost of fuel and this significantly affects the prices of moving the products as well as the raw materials from and to the market thus affecting the entire sector (Nestle Australia, 2000). The cost of supplies may either go up or down depending on the prevailing economic conditions in the market.
Labor and operational costs
The other way through which the economy may influence the food industry is by affecting the labor and operational costs of the sector in that. In this, the compensations for the employees may vary depending on the rate of inflation while the cost of fuel and materials to run the industry may also increase or decrease based on the prevailing economic conditions (Perocchi, Wysocki, Kepner, & University of Florida, 2000). Thus, the global economy affects the industry through these important operational aspects of the food industry.
Effects of domestic economy to the industry
The P/E ratio for Nestle Company is at 27.02 while that of Tyson Foods is at 12.57 a decline from what was experienced in the last couple of years. Through this, it is evident that the domestic in economy in the two countries where the companies are situated have been affecting the operations of the companies. From the ratios indicated, it is very clear that the domestic economies have been supporting the operations of the companies over the years as the price of the company shares seem to be improving.
Domestic economy variables
Some of the important domestic economic variables include the gross domestic product, consumer price index, producer price index, and employment indicators as well as the retail sales and consumer confidence in the quality of the products produced by the companies. Some of the variables that apply in the case presented include the GDO, CPI, and the consumer price index.
Nature of the industry
The food industry is defensive in nature as the products that are offered by the industry through the companies highlighted are necessities to humans and are usually not affected by factors that affect the products that fall in the cyclical industry.
Leading firms in the industry
Nestle and Tyson Foods are amongst the leaders in this industry. The favorable economic and operating environment that has been offered by the countries where they operate can easily explain the reasons why these companies have stayed ahead of their competitors. The state of the companies can also be explained by the rate of customer loyalty that the companies have acquired from their customers (Perocchi, Wysocki, Kepner, & University of Florida, 2000). As such, it is important to note that these companies have tried their best to be ahead of their competitors and make their services and products better and more effective to their customers from all over the world.
References
Nestle Australia. (2000). Nestle Australia.
Nestle (NSRGY) PE Ratio. (n.d.). Retrieved from http://www.gurufocus.com/term/pettm/NSRGY/PE-Ratiottm/
Perocchi, K., Wysocki, A., Kepner, K., & University of Florida. (2000). Tyson Foods, Inc: A summer MAB internship. Gainesville, FL: University of Florida, Institute of Food and Agricultural Sciences, Food and Resource Economics Dept.
Tyson Foods, Inc. (TSN) PE Ratio – NASDAQ.com. (n.d.). Retrieved from http://www.nasdaq.com/symbol/tsn/pe-ratio
