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Models
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Models of Equity Valuation
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Table 18.1 Financial Highlights for
Microsoft Corporation, October 25, 2007
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Expected Holding Period Return
E ( D1 ) E ( P1 ) P0
Expected HPR= E ( r )
P0
18-4
Required Return
k rf E (rM ) rf
18-5
Specified Holding Period
D D D P
V 1 2
... H H
18-6
Intrinsic Value and Market Price
• Intrinsic Value
– Self assigned Value
– Variety of models are used for
estimation
• Market Price
– Consensus value of all potential traders
• Trading Signal
– IV > MP Buy
– IV < MP Sell or Short Sell
– IV = MP Hold or Fairly Priced
18-7
You expect the price of IBX to be $59.77 per share a year
from now. Its current market price is $50, and you expect to
pay a dividend 1 year from now of $2.15 per share.
a.What is the stock’s expected dividend yield, rate of price
appreciation, and holding period return?
b.If the stock has a beta of 1.15 the risk free rate is 6% per
year, and the expected return market is 14% per year what
is the required return on IBX stock?
c.What is the intrinsic value of IBX stock, how does it
compare to the current market price
18-8
Dividend Discount Models: General
Model
Dt
Vo
t 1 (1 k )
t
V0 = Value of Stock
Dt = Dividend
k = required return
18-9
No Growth Model
D
Vo
k
• Stocks that have earnings and dividends
that are expected to remain constant
– Preferred Stock
18-10
No Growth Model: Example
D
Vo
k
E1 = D1 = $5.00
k = .15
V0 = $5.00 /.15 = $33.33
18-11
Constant Growth Model
Do (1 g )
Vo
kg
g = constant perpetual growth rate
18-12
Constant Growth Model: Example
Do (1 g )
Vo
kg
18-13
Estimating Dividend Growth Rates
g ROE b
g = growth rate in dividends
ROE = Return on Equity for the firm
b = plowback or retention percentage rate
(1- dividend payout percentage rate)
18-14
Figure 18.1 Dividend Growth for Two
Earnings Reinvestment Policies
18-15
Present Value of Growth Opportunities
18-16
Present Value of Growth Opportunities
Continued
• Price = No-growth value per share + PVGO
(present value of growth opportunities)
E1
P0 PVGO
k
18-17
Partitioning Value: Example
18-18
Partitioning Value: Example Continued
3
Vo $42.86
(.15.08)
5
NGVo $33.33
.15
PVGO $42.86 $33.33 $9.52
Vo = value with growth
NGVo = no growth component value
PVGO = Present Value of Growth Opportunities
18-19
Life Cycles and Multistage Growth
Models
T
(1 g1 ) t
DT (1 g 2 )
P0 D0
t 1 (1 k ) t
( k g 2 )(1 k ) T
18-20
Multistage Growth Rate Model: Example
D0 = $2.00 g1 = 20% g2 = 5%
k = 15% T = 3 D1 = 2.40
D2 = 2.88 D3 = 3.46 D4 = 3.63
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• Diasumsikan proyeksi
Tahun Dividen pertumbuhan deviden hanya
sampai 2022, dan
2019 $0.50
diperkirakan mulai 2023
2020 0.66 dividen akan tumbuh
konstant (steady growth)
2021 0.83
dengan perkiraan dividend
2022 1.00 payout ratio 0.3 dan ROE
11%.
• Diketahui beta 0.95, risk free
3.5%. Market risk premium
3.5%
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Table 18.2 Financial Ratios in Two
Industries
18-23
Figure 18.2 Value Line Investment
Survey Report on Honda Motor Co.
18-24
Price Earnings Ratios
18-25
P/E Ratio: No Expected Growth
E1
P0
k
P0 1
E1 k
• E1 - expected earnings for next year
– E1 is equal to D1 under no growth
• k - required rate of return
18-26
P/E Ratio: Constant Growth
D1 E1 (1 b)
P0
k g k (b ROE )
P0 1 b
E1 k (b ROE )
b = retention ratio
ROE = Return on Equity
18-27
Numerical Example: No Growth
PE = 1/k = 1/.125 = 8
18-28
Numerical Example: Growth
18-29
Table 18.3 Effect of ROE and Plowback
on Growth and the P/E Ratio
18-30
P/E Ratios and Stock Risk
18-31
Figure 18.3 P/E Ratios of the S&P 500
Index and Inflation
18-32
Figure 18.4 Earnings Growth for Two
Companies
18-33
Figure 18.5 Price-Earnings Ratios
18-34
Figure 18.6 P/E Ratios for Different
Industries, 2007
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Other Comparative Value Approaches
• Price-to-book ratio
• Price-to-cash-flow ratio
• Price-to-sales ratio
18-36
Figure 18.7 Market Valuation Statistics
18-37
Free Cash Flow Approach
18-38
18-39
Comparing the Valuation Models
• In practice
– Values from these models may differ
– Analysts are always forced to make
simplifying assumptions
18-40
The Aggregate Stock Market
18-41
Figure 18.8 Earnings Yield of S&P 500
versus 10-Year Treasury-Bond Yield
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Table 18.4 S&P 500 Price Forecasts
Under Various Scenarios
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Tugas Kelompok
• Pilih 1 saham untuk dianalisis
• Gunakan metode;
1. Two stage dividend discount model
2. Free cash flow to the firm
3. PEG ratio
Untuk menentukan intrinsik/true value dari saham
perusahaan tersebut di 2018 dan menetukan
apakah harga saat ini under/over price
Note: Estimasi dilakukan dari 2019 – 2023, mulai
2014 diasumsikan steady growth rate
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• Laporan versi Ms. Word diprint dan
dikumpulkan dikelas minggu depan.
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