Question

Two Part Question

The Price is Right!

Utilizing 1 of these public companies—Target, Coke, Pepsi, Wal-Mart, or J. P. Morgan—determine the right price for that company’s stock in the following 5 easy steps:

Visit this Web site.

Type in your selected company’s name in the Quote Search box, and select your company's stock symbol. Jot down the current stock price. 

Select the Analysis tab, and find the Analyst Recommendation box. Jot down the stock’s Earnings Per Share (EPS) Estimate. 

Select the Price Ratios tab, and jot down the current Price to Earnings Ratio (P/E)  for the industry (not the company).

Using the PE valuation model to determine the right price for this stock, multiply the industry average P/E ratio by the stock’s EPS to estimate the intrinsic price of the stock. 

Answer the following questions:

Is this stock overvalued or undervalued when compared to the current stock price? 

What are the analysts’ recommendations for this stock (buy, sell, or hold)? 

Do you agree with them? Would you consider purchasing this stock? Why?

Answer 1

Selected Company Name: Target: Current Market Price= $73.00; EPS Estimate: $5.66; Current P/E ratio for Industry is: 30.67; By multiplying the industry average P/E i.e. 30.67 by EPS estimate for Target= $5.66 this will yield the Intrinsic price of the Stock as = $173.59.

Stock is undervalued when intrinsic value is compared with current stock price. Out of the 7 Analysts Recommendations 2 have recommended buying and 5 to hold.

I would agree with the Analysts who have recommended Buying this stock because its General and Overall Profitability both have improved in recent year by outperforming the Industry Averages.