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Value
Cost of Debt
Corporate Tax Rate
Total Debt
Total Equity
Total Firm Value
Cost of Equity
Other data on the company
CAPM Component
Beta:
Historical Market Return
Risk Free rate
6.69%
11.87%
$ 1,676,000,000.00
$ 2,158,000,000.00
$ 3,834,000,000.00
13.56%
Calculated Value:
1.32
11.00%
3.00%
But as a tool for analyzing investment opportunities I have taken this a step further I am
comparing to other companies in the same segment of the economy. This way I can see how SPX
compares to others in a marketplace that I believe is set to rapidly grow if the economy can get
fully back on track. The comparison companies I am using are Blount International (BLT),
Sunpower Corp (SPWR) and Curtiss-Wright Corp (CW). These three companies are in the same
basic industry as well as being similar in size or other characteristics compared to SPX Corp.
Table 2 shows how their WACCs compare to SPX.
One factor that comes through is the impact of the corporate tax rates. These companies
show a wide range of effective rates. From researching the companies it appears that they are all
experiencing extraordinary events that are impacting their rates, and thus having an impact on
the WACC calculations. In compiling this calculation I did defer to a three year average for the
tax rate (thatsWACC, 2014). Even with that moderate smoothing the impact still appears to be
significant.
Another consideration is the Debt to Equity ratios for the companies. SPX carries a hefty
77.66% where the others are 55% for BLT and 25-26% for SPWR and CW. This is of concern
from the standpoint that SPX may have concerns for being able to generate cash to repay debt
obligations. This puts it in an odd position since it operates in a moderately capital intensive
industry. This carries some negative stigma from investors and potential lenders should the
company need to use debt for future expansion or taking advantage of a swing in the
marketplace.
Table 2, Comparison WACCs
SPX
WACC
11.09%
Cost of Debt
Corporate
Tax Rate
Total Debt
Total Equity
Total Firm
Value
Cost of
Equity
Debt to
Equity
6.69%
BLT
13.73%
3.87%
SPWR
21.15%
12.54%
CW
13.21%
4.02%
11.87%
39.01%
-5.72%
30.25%
$1,676,000,000.0 $
$
$
0 477,372,500.00
867,482,500.00
920,076,500.00
$2,158,000,000.0 $
0 859,330,000.00
$ 3,400,000,000.00 $ 3,480,000,000.00
$3,834,000,000.0
0 $ 1,336,702,500.00 $ 4,267,482,500.00 $ 4,400,076,500.00
13.56%
77.66%
20.04%
23.16%
15.96%
55.55%
25.51%
26.44%
Summary
SPX as an investment appears to be a worthy consideration. The high debt to equity ratio
is more of a concern than the WACC but I never would have looked at it without calculating the
WACC. While not producing stellar results it does have a solid base line to start from. The results
of similar companies show that overall SPX is doing all right. If the economy would continue to
turnaround and more capital projects come on line then SPX may be worth looking at for a solid,
if not spectacular, return on your investment dollar.
References
Bloomberg. (2014, Dec 4). S&P 500 Index. Retrieved from Bloomberg.com:
http://www.bloomberg.com/quote/SPX:IND
Norman, D. (2012, Feb 14). Pent-Up Demand. Retrieved from MAPI:
https://www.mapi.net/pent-demand
Schwab. (2014, Dec 4). SPX Corporation. Retrieved from Charles Schwab & Co, Inc.:
https://client.schwab.com/secure/cc/research/stocks/stocks.html?
path=/research/Client/Stocks/Summary/QuoteDetails&symbol=SPW
thatsWACC. (2014, Dec 6). FAQ. Retrieved from ThatsWACC.com:
http://thatswacc.com/faccs.php
Value Based Management. (2014, Dec 4). WACC Investment Analaysis. Retrieved from Value
Based management Inc.: http://www.valuebasedmanagement.net/methods_wacc.html