Question

I know you have a rule that you can only answer one question, but my time is running out and I still have a lot of questions to solve. Please give me an accommodation. If you just answer one question, please don't want to answer this question, please don't.

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You are asked to value Gamecocks Inc. using the relative valuation method. Gamecocks Inc.'s earnings forecast for next year (EPS (next year) is $2.44. The valuation and earnings of comparable companies are provided below. What is your estimate for the company's stock price? Round to one decimal place. [Hint: Compute the corresponding valuation multiple of the comparables and take simple average across the three comparable companies. Then apply this average multiple to Gamecocks Inc.] Stock EPS (TTM) EPS (next year) Price EPS growth 5Y $18.3 $1.04 $1.22 A 5.1% $26.3 $1.12 $1.42 6.9% В $55.9 $2.11 $2.80 10.2% Numeric Answer:

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Answer 1

1)

Stock	Price	EPS (Next year)	P/E
A	18.3	1.22	15.00
B	26.3	1.42	18.52
C	55.9	2.8	19.96
		Average	17.83

P/E = Price / EPS

Estimated Stock Price = Average P/E x EPS = 17.83 x 2.44 = $43.50

2) Value of firm = FCF1 / (1 + r) + (FCF2 + TV) / (1 + r)^2

where, FCF1 = FCF2 = 40, TV - Terminal Value = 15 x 40 = 600

=> Value of firm = 40 / 1.13 + 640 / 1.13^2 = $536.61

Value of firm = Equity + Debt - Cash

=> Equity Value = 536.61 - 20 + 8 = $524.61 million

Stock Price = 524.61 / 10 = $52.46