MBAA 518 – Managerial Finance Activity 3.5 (Due in Activity 4.5)
Valuation of Stock using PE ratios
Note: This activity will be submitted as Activity 4.5.
However, it is recommended you begin to start work on this activity in Module
3. Most of the content necessary to complete the assignment is provide in
Module 3.
Submission of the assignment will occur in Module 4.
There is also a discussion question in activity 4.6 related
to this assignment.
For this activity, you will need to select a publicly traded
firm and a major competitor.
Firms from any industry can be used.
Go to reuters.com and for the firm you have selected obtain
the trailing twelve-month P/E ratio for the firm, industry, and sector. (You
can use other sources if you wish)
Use information about your company’s earnings and industry
and sector’s P/E s based on the P/E ratio value your selected firm as indicated
in the example. If there is no earnings estimate, or the earnings estimate is
negative, use earnings for a previous year. If that’s also negative, pick
another company for this assignment. There is an example of a partially completed
table found here. Note: the example is only complete for one of the two firms
indicated. Your submission must include the data for both firms. Boeing’s data
is included; therefore, Boeing cannot be used by any student. Lockheed-Martin
is indicated as a competitor but no information is provided. Lockheed-Martin
could still be used.
Once you have completed the above write a short report
discussing the valuation of your selected firm and competitor. Note if the
current price is very close to “Estimated share price based on TTM P/E and
Earnings past 12 months.” This should be very close if not you have likely done
something wrong. How does the valuation of your firm compare to that of the
competitors based on the P/E ratio? Why might this be the case? How does you
firm’s current price compare to the estimated price using the industry and
sector P/E’s compare both for the TTM and estimated year end? Is it higher or
lower? Why might that be (provide one rational reason why)? Based on simple
analysis which of the two firms (your selected firm and its competitor) appears
to be undervalued? Why did you draw that conclusion? What do you suspect is the
reason?
Your submission will only need to be a single page to page
and a half formatted with single-spaced, Times New Roman, 12 point font.
Include a citation for where you retrieved the data and the date retrieved. A
table following the example must be included in your submission but is not
considered as part of the page to page and a half write-up. Get to the point in
your write-up. There is no need for extra “baggage.”
May 2015 1
