Question

Here is the following information on the Cheesecake Factory, I am trying to answer question 1 below. Can you please help me out? Excel assignment.

• Current Dividend (Source – Yahoo!Finance) $1.28
• Required Return (Estimated) 8.9%
• Current EPS (Source – Yahoo!Finance) $2.14
• Current Book Value Per Share (Source – Yahoo!Finance) $13.24
• Current EBITDA per share (Source – Yahoo!Finance) $5.25
• Current Debt per share è $2.80 Current Cash and Equivalents per share $0.61
• Initial Growth Rate for H-Model (Estimated) 9%
• Terminal Growth Rate for H-Model (Estimated) 3%
• Time to Reach Terminal Growth Rate for H-Model (Estimated) 10 years
• Forecasted Growth Rates (Estimated)
  • Year 1 6%
  • Year 2 9%
  • Year 3 12%
  • Year 4 6%
  • Year 5 4%
  • Years 6 through infinity 3%
• Historical PE, PB and EV/EBITDA (Source – Morningstar and Gurufocus.com)
  • 5-Year Average 19.8 4.1 9.3        
• Comparative PE, PB, and EV/EBITDA for S&P 500 (Source – Morningstar and estimate)
  • 19.2 (5-year avg = 19.6)     3.7 (5-year avg = 2.9)     13.0 (5-year average 12.3)

1. Calculate the price for Cheesecake Factory using the
   1. H-Model
   2. Non-Constant Dividend Valuation Approach
   3. Relative valuation
2. 1. Historical PE, PB, and EV/EBITDA
   2. Comparative PE, PB, and EV/EBITDA (Adjust S&P 500 to reflect Cheesecake Factory’s average discount or premium to the market over the past 5 years. Example, if the S&P 500 had an average PE over the past 5 years of 17.0 and your company had an average PE of 14, then your company has historically traded at 82.35% of the market average PE. Therefore, if the current S&P 500 PE is 17.7, your company should have a PE of 14.58 based on the comparative relative valuation to PE. Take the 14.58 times your firm’s EPS to get fair value using this method.)

Answer 1

a. Concept of H-model ,

V = [1.28*( 1+0.03)]+ [1.28*10/2 *(0.09-0.03)]/ (0.089 -0.03) = 1.7024/0.059 = 28.85424

b . Based on concept of Non-Constant Dividend Valuation Approach ( two stage model)

Year	Growth rate	Dividend	PV(d)
0		1.28
1	1.60%	1.30048	1.194197
2	2.90%	1.33819392	1.128401
3	3.12%	1.37994557	1.068509
4	4.60%	1.443423067	1.026318
5	5.40%	1.521367912	0.993333
	Value of 1st stag		5.410758
	Second stage Value	1.521368*(1+0.03)/(0.089-0.03)	26.55948
	Total value of share		31.97023

C-1 ) relative valuation concept ,

V = E * (P/E) --- for P/E approach , V = 2.14*19.8= 42.372

V = B * (P/B) --- for P/B approach , V = 13.24*4.1= 52.284

V = EBITDA * (EV/EBITDA) --- for EV/EBITDA approach , V = 5.25 *9.3= 48.825

C-2) Relation with company data with S$P 500 with 5 year concept ,

	5 year Company (   C )	5 year S$P ( S )	Relation(R ) = C/S	Current S$P (S_C)	Current Company (S_C *R)	Value
P/E	19.8	19.6	101.02%	19.2	19.396	41.507	2.14*19.396
P/B	4.1	2.9	141.38%	3.7	5.231	69.258	13.24*5.231
EV/EBITDA	9.3	12.3	75.61%	13	9.829	51.602	5.25*9.829