wal-mart stocks

  1. Gather the financial data necessary for calculations:
  2. Analysist estimate of EPS
  3. PE ratio of the industry
  4. Most recent dividend
  5. Anticipated dividend
  6. Dividend growth rate
    • there are many ways to calculate this, if the dividend growth is relatively constant over time and there have not been any major announcements to cause you to believe it will change then just use the average rate of change
    • alternatively you can use one of the following methods:
      1. PRAT model: Retention rate × Profit margin × Asset turnover × Financial leverage
      2. Implied payout method: g=ROE(1-dividend payout ratio)
  • CAGR method: g= ((DIVo / DIVh) ^ (1 / h)) – 1 where: h is some number or years in the past, ex: if you find a dividend from 5 years ago then h=5

 

  1. Beta
    • look up the reported beta
    • calculate the beta based on returns
  2. Stock price for the last 5 years
  3. Market return (Rm) for the last 5 years – use S&P500
  4. Risk Free Return (Rf) for the last 5 years – use 3 month T-bills

 

  1. Using the skills you learned in class calculate the following:
    1. Stock price estimate using the PE method
    2. Required rate of return using the CAPM equation with the most recent data and the quoted beta
    3. Required rate of return using a CAPM regression
      • note you may need to convert T-bill returns from discounts to monthly returns depending on your data source
        • How does your beta compare with the quoted beta? How can you explain the difference (if any)?
  1. Stock price estimate using the adjusted DDM/GGM method. You may assume a 5 year horizon since the earnings growth rate projections are not available beyond that.
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