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d. What metric would you pick to do a direct valuation for Mastec? Why did you choose that metric? What value would you pick
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Answer #1

I would pick Price/Earnings ratio to do a direct valuation. I choose this metric because :

  • Price/book value is more suitable for financial companies, and banks which have most of their assets in book value
  • Price/OCF ratio is not available for all the companies (KBR is missing). As the comparable universe is already very small, this could skew the valuation

The value picked for the multiple = average of Price/Earnings ratio of comparable companies. We choose this because this captures the average of the ratio across the comparable universe.

Average = (18.02 + 10.75 + 17.65 + 14.23) / 4 = 15.16

Implied share price = EPS (TTM) of MTZ * average Price/Earnings ratio of comparable companies

Implied share price = $3.32 * 15.16 = $50.34

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