Topic: Stock Valuation Project

Order Description Stock name: TMHC Taylor Morrison Home Corporation Term Paper for Fin 6361 Stock Valuation Project The goal of this assignment is to apply the fundamental analysis tools that we have studied in Chapter 6. First choose a publicly traded company that you would hypothetically want to analyze. Please get approval from me so that two students do not analyze the same stock. 1. Using a financial news website such as the following, look up the financial statements of that company. (There are other places to look; it’s your choice.) http://moneycentral.msn.com/investor/invsub/results/statemnt.asp or Yahoo.com/Finance or Reuter.com…… I would myself go to “ Mergent online” to get all financial information for a company. You can access UHV library online and connect to Mergent online. Please see the file called “Mergent Online” for more detail. 2. Using the Dividend Discount Model, the Residual Income Model, the P/E ratio, the P/CF ratio, and the P/S ratio of chapter 6, perform valuations on or predictions of the firm’s stock price. In other words estimate the value of the stock that you have chosen. You need to perform the followings: a. For mature stock use the Constant Dividend Growth Model (g < k), find current dividends per share, D(0), from the income statement. Estimate the dividend growth rate, g, or find it on the ratios/statements pages. Estimate the discount rate, k, using the CAPM and other methods. Once you have all of these variables, then estimate the stock value. Then perform a sensitivity/scenario analysis See Royal Dutch Stock Valuation file. b. If your stock is a growth stock (g>k), then you need to use two or three stage discounted cash flow model. (See EBay or growth stock estimation file). Note: If your stock is a mature stock, then you do part a above; if your stock is a growth stock you must do b above. So depending on what type of stock you choose you should either perform part a or b, you cannot do both. c. Residual Income Model: Find or estimate the EPS growth rate. Find book value per share on the balance sheet. Use the discount rate k from part a or b above and estimate the value of your stock according to residual income model of chapter 6. d. P/E ratio: Find or estimate the EPS growth rate or g. (You can use the same EPS growth rate from part a or b.) Predict next year’s EPS. Then predict next year’s stock price using the average P/E ratio. (Use the average P/E of the last five years.) You may (If you decide) use approximate average P/E by looking at the P/E graph from: http://bigcharts.marketwatch.com And under interactive charts and advanced chart you can plot The P/E ratio. I would get the average or historical ratio from Morningstar.com. e. P/CF ratio: Find or estimate the CFPS growth rate. Predict next year’s CFPS. (You can use Cash from Operations on the Cash Flow Statement to approximate operating cash flow.) Then predict next year’s stock price using the average P/CF ratio. (Use the average P/CF of the last few years from Morningstar.com). Could also use bigcharts.com f. P/S ratio: Find or estimate the SPS growth rate. Predict next year’s SPS. Then predict next year’s stock price using the average P/S ratio. (Use the average P/S of the last few years.) 3. Now for the fun part! You now have as many as five different estimates for the stock value. Compare your estimates of stock value to the current actual stock price (on Yahoo Finance or other). Make a prediction about whether the stock is underpriced or overpriced (i.e. whether you should buy it or short it). 4. What you are to turn at the end of semester: Create a neat, organized report of your stock analysis: a. Section 1: Include your name, the assignment (Term Paper), and a typed concise description of your analysis. Include why you picked the stock, and your conclusions on whether the stock is overvalued or undervalued. Do the results of your calculations agree with other current information that you may know about the company? b. Section 2: Neat, organized, legible estimations of each model above. Clearly show your five (a or b, c, d, e, and f) stock price valuations and compare it to its market price. c. Section 3: Conclusion based on your analysis d. References Note: You can finish writing this paper after we go over chapter 6. ALTERNATIVE PAPER: If for some reason you prefer to get a real life experience, here is an alternative term paper. Develop a business plan for “Star War Coffee” Assume you will try to raise venture capital for your project; you project is to start an upper class coffee house in Houston to compete with Starbuck. Your first store will be in Houston. Develop a very realistic detailed business plan for your project. Assume you open your first store in Houston very quickly and will open your second store 12 months after opening the first store and your third store will be opened 24 months after the first store. Write the plan only for the first 3 stores and not more. Project your costs and cash flows for seven years. Then you need to show your project to venture capitalist for funding. The amount of funding needed should be clear and based on your forecasted cash flows. Minimum number of page for this project is 15 pages, maximum 50 pages.