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1、INVESTMENTS | BODIE, KANE, MARCUSCopyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinCHAPTER 18Equity Valuation ModelsINVESTMENTS | BODIE, KANE, MARCUSValuation: Fundamental AnalysisFundamental analysis models a companys value by assessing its current and future pr
2、ofitability.The purpose of fundamental analysis is to identify mispriced stocks relative to some measure of “true” value derived from financial data.18-2INVESTMENTS | BODIE, KANE, MARCUSBalance Sheet ModelsDividend Discount Models (DDM)Price/Earnings RatiosFree Cash Flow ModelsModels of Equity Valua
3、tion18-3INVESTMENTS | BODIE, KANE, MARCUSValuation by ComparablesCompare valuation ratios of firm to industry averages.Ratios like price/sales are useful for valuing start-ups that have yet to generate positive earnings.18-4INVESTMENTS | BODIE, KANE, MARCUSLimitations of Book ValueBook values are ba
4、sed on historical cost, not actual market values.It is possible, but uncommon, for market value to be less than book value.“Floor” or minimum value is the liquidation value per share.Tobins q is the ratio of market price to replacement cost.18-5INVESTMENTS | BODIE, KANE, MARCUSIntrinsic Value vs. Ma
5、rket PriceThe return on a stock is composed of dividends and capital gains or losses.The expected HPR may be more or less than the required rate of return, based on the stocks risk.18-6INVESTMENTS | BODIE, KANE, MARCUSRequired ReturnCAPM gives the required return, k:If the stock is priced correctly,
6、 k should equal expected return.k is the market capitalization rate.18-7INVESTMENTS | BODIE, KANE, MARCUSThe intrinsic value (IV) is the “true” value, according to a model.The market value (MV) is the consensus value of all market participantsTrading Signal: IV MV BuyIV k18-25INVESTMENTS | BODIE, KA
7、NE, MARCUSTable 18.3 Effect of ROE and Plowback on Growth and the P/E Ratio18-26INVESTMENTS | BODIE, KANE, MARCUSP/E and Growth RateWall Street rule of thumb: The growth rate is roughly equal to the P/E ratio.“If the P/E ratio of Coca Cola is 15, youd expect the company to be growing at about 15% pe
8、r year, etc. But if the P/E ratio is less than the growth rate, you may have found yourself a bargain.”Quote from Peter Lynch in One Up on Wall Street.18-27INVESTMENTS | BODIE, KANE, MARCUSP/E Ratios and Stock RiskWhen risk is higher, k is higher; therefore, P/E is lower.18-28INVESTMENTS | BODIE, KA
9、NE, MARCUSPitfalls in P/E AnalysisUse of accounting earningsEarnings ManagementChoices on GAAPInflationReported earnings fluctuate around the business cycle18-29INVESTMENTS | BODIE, KANE, MARCUSFigure 18.3 P/E Ratios of the S&P 500 Index and Inflation18-30INVESTMENTS | BODIE, KANE, MARCUSFigure 18.4
10、 Earnings Growth for Two Companies 18-31INVESTMENTS | BODIE, KANE, MARCUSFigure 18.6 P/E Ratios for Different Industries, 200718-32INVESTMENTS | BODIE, KANE, MARCUSOther Comparative Value ApproachesPrice-to-book ratioPrice-to-cash-flow ratioPrice-to-sales ratio18-33INVESTMENTS | BODIE, KANE, MARCUSF
11、igure 18.7 Market Valuation Statistics 18-34INVESTMENTS | BODIE, KANE, MARCUSFree Cash Flow ApproachValue the firm by discounting free cash flow at WACC.Free cash flow to the firm, FCFF, equals:After tax EBITPlus depreciationMinus capital expendituresMinus increase in net working capital18-35INVESTM
12、ENTS | BODIE, KANE, MARCUSComparing the Valuation ModelsIn practiceValues from these models may differAnalysts are always forced to make simplifying assumptions18-36INVESTMENTS | BODIE, KANE, MARCUSThe Aggregate Stock MarketExplaining Past BehaviorForecasting the Stock Market18-37INVESTMENTS | BODIE, KANE, MARCUSTable 18.4 S&P 500 Price Forecasts Under Various Scenarios18-38
