1 / 8

PERC 2007: Equity Research Overview and Discussion

PERC 2007: Equity Research Overview and Discussion. Karl C. Mergenthaler JPMorgan Chase. A Good Place to Start. On Bloomberg, Type ITW Equity DES {GO}. Financial Situation and Prospects. Trends Are metrics getting better or worse? How do metrics compare with peers?

ganit
Download Presentation

PERC 2007: Equity Research Overview and Discussion

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. PERC 2007:Equity Research Overview and Discussion Karl C. Mergenthaler JPMorgan Chase

  2. A Good Place to Start On Bloomberg, Type ITW Equity DES {GO}

  3. Financial Situation and Prospects • Trends • Are metrics getting better or worse? • How do metrics compare with peers? • Can / will metrics get better in the future? • Income Statement • Gross, Operating, and Net Margin • Balance Sheet • Leverage: Net Debt to Total Capital • What is the optimal capital structure? • ROE = (NI / Sales) X (Sales/Assets) X (Assets / Equity) • Cash Flow Statement • Free Cash Flow / Net Income • Bloomberg: ITW equity FA {go} • Historical data in tables and graphs.

  4. Industry and Competitive Analysis Potential Entrants: Barriers to Entry Industry Competitiveness: Rivalry among existing firms Buyers Suppliers Hint: Focus on growth and sustainability of sales and earnings. Substitutes

  5. Industry and Competitive Analysis • Secret to success: Do some original research! • Conduct a survey • Interview a customer • Go to a factory • Visit a store • Analyze raw material costs

  6. Valuation • Key Inputs • Growth Rate: What is driving growth in sales and earnings? • Interest Rate (WACC) • CAPM • Multi-factor Arbitrage Pricing Theory • Add equity risk premium to LT bond yield • Discounted Cash Flow Models • Free Cash Flow Models • Firm lacks stable dividend policy • Dividend policy not related to earnings • FCF is related to profitability • Controlling shareholder perspective • Dividend Discount Models • Firm has dividend history • Dividend policy is related to earnings • Minority shareholder perspective

  7. Valuation • P/E Growth • Compare to Historical and Peer Group • Meaningless if EPS < 0 • Earnings can be volatile • Accounting issues • P/B ROE • BV more stable than EPS • Accounting issues • P/S Op Mgn • Sales not as volatile as EPS • Sales less influenced by accounting choices • High Sales = High Profits • TEV / EBITDA • TEV = Market Cap + Net Debt • Bloomberg: ITW equity RV {go} • Customize with the drop downs.

  8. Recommendation • Investment Recommendation • Buy: Target Price implies at least 15% upside. • Sell: Target Price implies at least 15% downside. • My advice: Take a stand - don’t call it a HOLD. • Investment Risks • What could go wrong? • What could change projections?

More Related