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yan_shi_wen_gao_1.pptxStock Valuation:
University of San Francisco
Instructor: Lawrence A. Souza
Manuel Reyes
Yan Lu
Haitham Almijmaj
Young Hoe Hur
Goldman Sachs background
Financial Conditions
Stock Valuation
Recommendation
Overview
Banking, investment management and financial services corporate. Founded in 1869, headquartered in New York City.
One of the premier investment banks in the world.
Employ more than 32600 people in US.
Deal business with more than 1538 companies, with the revenue around 40 million dollars in 2014.
Background
Investment banking
Institutional Client Services
Investing & Lending
Investment Management
Product & Service
Leadership
SOURCE: FFIEC.GOV NATIONAL INFORMATION CENTER
Bank Ranking By Total Assets
| Rank | Institution Name | Total Assets (As of 12/30/2014) |
| 1 | J.P. MORGAN CHASE & CO. | $2,572,773,000 |
| 2 | BANK OF AMERICA CORPORATION | $2,106,796,000 |
| 3 | CITIGROUP INC. | $1,842,181,000 |
| 4 | WELLS FARGO & CO. | $1,687,155,000 |
| 5 | GOLDMAN SACHS GROUP INC. | $856,301,000 |
| 6 | MORGAN STANLEY | $801,510,000 |
S.W.O.T. ANALYSIS
| STRENGTHS: 1.Branding 2.Strong Financial position 3.International presence 3.Diverse operations 4.Advanced technology 5.Industry leader in R&D 6.35,000 employees globally | WEAKNESS: 1.Legal issues 2.Fluctuating markets create variable revenues (Ex. possible expansion into emerging markets) 3.Global economic conditions/events/scandals (Ex. bond underwriting issues , European debt crisis, insider trading, American recession) have affected image to an extent 4.Fraud and bribery cases |
| OPPORTUNITIES: 1.Breaking into emerging economies 2.Diversification of portfolios for customers 3.Industry growth | THREATS: 1.Changing govt regulations and financial crisis’ (Ex. Ukraine and Greece) 2..Fluctuating/declining stock markets 3. Competitors (Ex. Morgan Stanley and Merrill Lynch) |
Source: Morningstar.com Wikinvest.com CSImaerket.com
FINANCIAL CONDITION
| Financial Ratios | Goldman Sachs | J.P. Morgan Chase | Industry | Conditions | |
| Profitability Ratios: | Net profit margin% | 23.4 | 17.2 | 18.75 | Above Average |
| ROA% | 0.9 | 0.7 | 0.8 | Above Average | |
| Leverage Ratios: | ROE% | 11.2 | 8.4 | 9.8 | Above Average |
| Debt to Equity | 2.63 | 1.61 | 2.1 | Above Average | |
| Interest Coverage | 2.79 | 3.92 | 3.66 | Above Average | |
| Overall | Above Average |
*as of current quarter
Source: Morningstar.com CSImarket.com
FINANCIAL CONDITION
| Financial Ratios | Goldman Sachs | J.P. Morgan Chase | Industry | Conditions | |
| Equity Ratios | P/E | 11.1 | 11.5 | 17.1 | Below Average |
| Dividend Payout% | 1.2 | 1.3 | 1.3 | Average | |
| Growth (year to year) | Revenue% | (14.57)* | (4.35)* | (3.49)* | Below Average |
| Operating Income% | (9.63)* | (16.49)* | (.94)* | Below Average | |
| Net Income% | (9.61)* | (6.57)* | 24.63* | Below Average | |
| EPS% | (4.63)* | (4.78)* | 25.83* | Below Average | |
| Below Average |
Stock value= $23.76/10%= $237.60 > current prices= $197.53
VALUATION: PERPETUITY MODEL
Formula: PV= Earning per share / R Equity
| Risk free rate | 2.1171% |
| beta | 1.75 |
| expected market return | 5% |
| R equity | 10% |
| CAPM model |
| R equity | Stock Value $ | Range |
| 9% | 264 | High |
| 10% | 237.6 | Medium |
| 13% | 182.77 | Low |
| 2013 | 2014 | 2015E | |
| EPS $ | 15.46 | 17.07 | 23.76 |
Source: Morningstar.com Nasdaq.com
Valuation Gordon Growth Model
| CAPM Model |
| Risk Free Rate | |
| Beta | |
| Expected Market Return | |
| REquity |
| 2012 | 2013 | 2014 | g | |
| EPS $ |
| g Requity | 2% | 3% | 4% | Range |
| 9% | High | |||
| 11% | Medium | |||
| 13% | Low |
Valuation: multiple approach
| EPS in 2013 | g |
| 2013 | 2014 | |
| P/E ratio | Stock value | Range |
Formula: PV= P/Et+1 * EPS (1+g)
Stock Value = 22.3 * 0.9 (1+ 8%) = $21.68 > Current Price = $ 17.22
g: growth rate
Intrinsic Value: $26.06 > Current Price: $17.22
Valuation: DCF Model
| weighted debt | |
| weighted equity | |
| R debt | |
| R equity | |
| WACC |
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | TV (g’=4%) | |
| EPS$(g=10%) | |||||||
| PV $ | |||||||
| Corporation va;ie |
| WACC | Stock Value | Range |
WACC Formula: Wd * Rd (1-T) + We * Re
Terminal Value: EPS t+5 (1+g’) / (R Equity- g’)
long-term cash flow growth rate (g’)= 4%
| Perpetuity | ||||
| Gordon Growth | ||||
| Multiple growth | ||||
| DCF | ||||
| intrinsic value by weighted |
| Model | stock value | Weighted |
Intrinsic value: > Current price
Appendix: intrinsic value
| High | Medium | Low | |
| Perpetuity Model | |||
| Golden Growth Model | |||
| Multiple Approach | |||
| DCF Model |
| For Models : | |
| Perpetuity Model | |
| Golden Growth Model | |
| Multiple approach |
| DCF Model |
