Equity Analysis History and Strategy Case Study

Equity Analysis History and Strategy Case Study All the instructions are in the document attached please follow them accordingly. NO PLAGIARISM

Equity Analysis History and Strategy Case Study

The company I need to do is:

PepsiCo Inc. (PEP)

For ratios and historical growth rates, the Morningstar website is great: www.morningstar.com

If you have any questions please let me know

FIN 315 Investments

Equity Analysis History and Strategy Case Study
Equity Analysis History and Strategy Case Study

Semester Project ñ Equity Analysis Case Study

Learning Goals: The purpose of this assignment is for you to apply what you are learning in class in the analysis and valuation of a company’s equity. Specifically,

Equity Analysis History and Strategy Case Study

ï Develop an outlook for the US economy to inform an industry and company analysis using economic data;

ï Apply the Porter framework and ratio analysis to analyze an industry;

ï Determine whether the company is fairly valued based on financial, discounted cash

flow, and P/E analysis, and recommend whether or not to purchase the company’s


ï Synthesize the course material into an analysis of a company and integrate the quantitative and writing elements of the course into a concise report.

ï Present supporting data effectively using tables.

Equity Analysis History and Strategy Case Study Instructions and Description

? Assume you are doing your analysis on the day the company released its last annual financial statements (probably either December 31, 2018 or June 30, 2018). Your forecast will be for one year after the date of last annual financial statements.

? Write the paper from the point of view of a junior equity analyst presenting a valuation to your boss.

? Do not include definitions of financial terms such as beta, return on equity, etc.

? The tables and graphs should be neat and integrated into the report. They should only include data that you reference (don’t just copy a whole table of industry ratios and paste it in).

? Look at a real equity report for guidance on the format, style of writing, etc. Samples from past CFA Research Challenge Winners:


? Your case study should be 5-10 pages in total length of text (double-spaced), plus the tables, graphs, and financial statements.

? Attach 5 years of Balance Sheet and Income Statement data at the end of your paper as an appendix (be sure to cite the source of this and all data you obtain). You should format it nicely so that your boss can read it easily and it looks integrated into the paper.

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Equity Analysis History and Strategy Case Study

? Cite all sources using footnotes. Include a bibliography. Use the APA style (NOT MLA

List of Works Cited)

? The paper must include all the elements below to earn full credit. Partial submissions

(just the industry analysis, e.g.) will not be graded and will receive a grade of F.

Required Elements of the Paper

Cover Page (Executive Summary):

? The Cover Page will be an Executive Summary of your company and recommendation

(whether you think the stock is a buy or sell, and why). A template will be provided to

you. (Note: As you are constructing your report, you will complete this section last.)

Introduction, Economic Environment, and Industry Dynamics (1-2 pages):

? Write an introduction to the paper. Describe the company, its primary business(es),

current strategy, and its industry/competitors (1 paragraph).

? Select 3 economic indicators relevant to your company and its industry.

o Graph the past 10 years of data. Make sure the units are appropriate and the

graphs make sense (e.g., Year-on-year % changes, not absolute $ amounts, graphs

are labeled, etc.).

? Discuss the indicators and your outlook for the economy.

Equity Analysis History and Strategy Case Study

? Relate the impact of this particular sector of the economy (producer prices, industrial

production, consumer spending, etc.) on your company and its industry.

o You are using data for the whole US economy (i.e., from FRED) ñ the data for

this part is not specific to your company, it is just a measure of a part of the

economy that could affect your company (CPI ñ changes in consumer prices ñ

might affect sales for a consumer products manufacturer, e.g. Do not include

demographic data or stock market indicators).

? Describe your companyís industry.

? Select and justify the major competitors you are going to use to compare with your

company (e.g., based on size, similar product lines, etc.).

? Discuss the current state of the industry and your companyís position in the industry

using the Porter framework (presented in the class slides and in the article ìThe Five

Competitive Forces That Shape Strategyî).

o Include a table, graph, etc. to support your industry analysis. You may integrate

the industry graph(s) with the economic indicator graph(s) if it is appropriate

(industry sales vs. Disposable Personal Income, e.g.). You must have at least one

illustration (table, graph, etc.) to support this analysis. Do not include anything

that you do not refer to in the paper.

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Equity Analysis History and Strategy Case Study Financial Analysis (1 page):

? Analyze your companyís financial ratios (cite source of ratios). Discuss the most

important aspects of your companyís liquidity, activity, leverage, and profitability (not

every single ratio listed, just the highlights). Explain what you think caused any big

changes in ratios over time, or big differences versus the competitor group. Relate the

financial performance to current strategies, M&A activity, and/or industry dynamics.

? Use the DuPont model to analyze ROE and ROA.

o Use the past 5 years of company ratios, and the latest year for the Competitor


P/E & Growth Rate Analysis (1-2 paragraphs):

? Analyze the P/Es for your company and its competitors based on the fundamental data.

? Discuss the marketís expectation of the companyís future growth rate derived from the

fundamental value of the P/E, compared to historical growth rates. Compare with the

sustainable growth rate from DuPont.

? State whether you think these assumptions are realistic given the companyís financial

history and strategy.

Equity Analysis History and Strategy Case Study Financial Forecast (1 page):

? Create a financial forecast (Income Statement) for your company for the next year fiscal

year. Explain your assumptions for each element of the forecast in the context of the

companyís strategy and competitive position.

? Use the forecast to find a target stock price for one year from now using the P/E method.

o Use three different P/Es: 1) the P/E for your company for last year; 2) the

forecasted P/E for your company (cite source); and the P/E for the competitor

group for last year. Explain which P/E assumption makes the most sense for your

company, or why you would use an average of some or all of the three


? Compute an expected return for next year and a valuation for the stock today, based on

the projected stock price and projected dividends.

? Obtain the beta for your company from a financial website (cite source). Calculate the

required return of your company using the Capital Asset Pricing Model (rf = 3%; rmkt =


? State whether the stock is overvalued or undervalued.

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Equity Analysis History and Strategy Case Study Valuation (1 page):

? Value your company using the 2-stage dividend growth model.

o Justify your choice of growth rates.

? Discuss the results. State whether the stock is overvalued or undervalued.

Conclusions (2-3 paragraphs):

? Compare your valuations from the:

  1. Financial Forecast with P/E Method
  2. Discounted Cash Flow Model (i.e., 2-stage dividend model)

? Discuss the strengths and weaknesses of the different assumptions you used.

? Explain and justify whether or not you would invest in the company.

Submission of Report:

(1) A first draft of the quantitative analysis is due April 11. Submit to Blackboard only.

(2) A final draft of the complete report is due April 25. Submit to Blackboard AND

submit a Printed Copy of the Completed Report. Be aware that Blackboard uses

anti-plagiarism software called SafeAssign to test for the originality of your final report.

Academic Honesty: Each student is responsible for their own paper. Forecasts and valuation

models should be generated independently and should not be obtained from the Internet. Using

someone elseís paper from a previous semester or another course as a template for your own

paper is plagiarism. Be sure to footnote any sources (including, but not limited to, data sources)

that you use for this assignment appropriately and completely and include a bibliography. As

you know, the analysis must be written in your own words, even if you footnote your sources. I

am not looking for an expert’s analysis, I am looking for your analysis.

Violators of the Academic Honesty Policy will be penalized to the limits of the University policy. Violators of the Academic Honesty Policy will receive an “F” for the course and a report will be filed with the Registrar detailing the students involved and the nature of the offense.

Your submission of the paper indicates that you have read and understood all the instructions above.


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