Question

Calculate EV/EBITDA, PE ratio and dividend yield for CVS (CVS), WAG (Walgreens) and FRED (Fred’s). Also calculate year-over-year sales growth and EBITDA growth. Using these together with other information of your choosing, explain why you would or wouldn’t invest in each of them.

CVS

Income Statement

All numbers in thousands

Revenue	12/31/2017	12/31/2016	12/31/2015
Total Revenue	184,765,000	177,526,000	153,290,000
Cost of Revenue	156,220,000	148,669,000	126,762,000
Gross Profit	28,545,000	28,857,000	26,528,000
Operating Expenses
Research Development	-	-	-
Selling General and Administrative	-	-	-
Non Recurring	-	-	-
Others	-	-	-
Total Operating Expenses	-	-	-
Operating Income or Loss	9,517,000	10,366,000	9,475,000
Income from Continuing Operations
Total Other Income/Expenses Net	-208,000	-671,000	-21,000
Earnings Before Interest and Taxes	9,309,000	9,695,000	9,454,000
Interest Expense	1,041,000	1,058,000	838,000
Income Before Tax	8,268,000	8,637,000	8,616,000
Income Tax Expense	1,637,000	3,317,000	3,386,000
Minority Interest	4,000	4,000	7,000
Net Income From Continuing Ops	6,631,000	5,320,000	5,230,000
Non-recurring Events
Discontinued Operations	-8,000	-1,000	9,000
Extraordinary Items	-	-	-
Effect Of Accounting Changes	-	-	-
Other Items	-	-	-
Net Income
Net Income	6,622,000	5,317,000	5,237,000
Preferred Stock And Other Adjustments	-	-	-
Net Income Applicable To Common Shares	6,622,000	5,317,000	5,237,000

WAG

Income Statement

All numbers in thousands

Revenue	8/31/2017	8/31/2016	8/31/2015
Total Revenue	118,214,000	117,351,000	103,444,000
Cost of Revenue	89,052,000	87,477,000	76,691,000
Gross Profit	29,162,000	29,874,000	26,753,000
Operating Expenses
Research Development	-	-	-
Selling General and Administrative	23,605,000	23,873,000	22,085,000
Non Recurring	-	-	-
Others	-	-	-
Total Operating Expenses	-	-	-
Operating Income or Loss	5,557,000	6,001,000	4,668,000
Income from Continuing Operations
Total Other Income/Expenses Net	-11,000	-261,000	1,248,000
Earnings Before Interest and Taxes	5,546,000	5,740,000	5,916,000
Interest Expense	693,000	596,000	605,000
Income Before Tax	4,853,000	5,144,000	5,311,000
Income Tax Expense	752,000	953,000	1,032,000
Minority Interest	808,000	401,000	439,000
Net Income From Continuing Ops	4,078,000	4,173,000	4,220,000
Non-recurring Events
Discontinued Operations	-	-	-
Extraordinary Items	-	-	-
Effect Of Accounting Changes	-	-	-
Other Items	-	-	-
Net Income
Net Income	4,078,000	4,173,000	4,220,000
Preferred Stock And Other Adjustments	-	-	-
Net Income Applicable To Common Shares	4,078,000	4,173,000	4,220,000

Fred's

Income Statement

All numbers in thousands

Revenue	1/28/2017	1/31/2016	1/31/2015
Total Revenue	2,125,424	2,150,703	1,970,049
Cost of Revenue	1,615,162	1,606,553	1,466,256
Gross Profit	510,262	544,150	503,793
Operating Expenses
Research Development	-	-	-
Selling General and Administrative	537,931	508,897	511,142
Non Recurring	-	-	-
Others	47,027	45,652	41,063
Total Operating Expenses	-	-	-
Operating Income or Loss	-74,696	-10,399	-48,412
Income from Continuing Operations
Total Other Income/Expenses Net	-	-	-
Earnings Before Interest and Taxes	-74,696	-10,399	-48,412
Interest Expense	2,318	1,431	504
Income Before Tax	-77,014	-11,830	-48,916
Income Tax Expense	-10,483	-4,459	-20,012
Minority Interest	-	-	-
Net Income From Continuing Ops	-66,531	-7,371	-28,904
Non-recurring Events
Discontinued Operations	-	-	-
Extraordinary Items	-	-	-
Effect Of Accounting Changes	-	-	-
Other Items	-	-	-
Net Income
Net Income	-66,531	-7,371	-28,904
Preferred Stock And Other Adjustments	-	-	-
Net Income Applicable To Common Shares	-66,531	-7,371	-28,904

Answer 1

In the absence of Balance Sheet data, it is not possible to calculate Enterprise Value (EV). Therefore to calculate EV/EBITDA is not possible.

Based on the Income statement data, one will not invest in Fred at all since the EBITDA is negative. However among the other 2, one should invest in CVS because of higher EBITDA margins and better growth. 2017 seems to be a disturbed year for everyone so one has to avoid such non-recurring phase and accordingly base their decisions.