Question

In: Finance

Given the information below for Seger Corporation, compute the expected share price at the end of...

Given the information below for Seger Corporation, compute the expected share price at the end of 2017 using price ratio analysis. Assume that the historical average growth rates will remain the same for 2017. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Year 2011 2012 2013 2014 2015 2016
Price $ 94.60 $ 100.50 $ 99.20 $ 96.70 $ 118.20 $ 133.60
EPS 3.30 4.01 4.81 5.51 7.70 8.70
CFPS 7.97 8.80 9.13 10.82 12.22 13.38
SPS 50.10 55.10 54.50 58.00 69.20 77.20

what's the share price

using P/E ratio

using P/CF ratio

using P/S ratio

Solutions

Expert Solution

(1) Using P/E ratio:

2011 2012 2013 2014 2015 2016
Price 94.60 100.50 99.20 96.70 118.20 133.60
EPS 3.30 4.01 4.81 5.51 7.70 8.70
P/E = Price/EPS 28.67 25.06 20.62 17.55 15.35 15.36
Average P/E 20.43
EPS growth rates (in %) 21.52 19.95 14.55 39.75 12.99
Average growth % 21.75

Thus share price = 20.43*1.2175*8.70 = $216.45

(2) Using P/CF ratio:

2011 2012 2013 2014 2015 2016
Price 94.60 100.50 99.20 96.70 118.20 133.60
CFPS 7.97 8.80 9.13 10.82 12.22 13.38
Price/CFPS 11.87 11.42 10.87 8.94 9.67 9.99
Average Price/CFPS 10.46
CFPS growth rates (in %) 10.41 3.75 18.51 12.94 9.49
Average growth % 11.02

Thus share price = 10.46*1.1102*13.38 = $155.36

(3): Using P/S ratio:

2011 2012 2013 2014 2015 2016
Price 94.60 100.50 99.20 96.70 118.20 133.60
SPS 50.10 55.10 54.50 58.00 69.20 77.20
P/S 1.89 1.82 1.82 1.67 1.71 1.73
Average P/S 1.77
SPS growth rate (in %) 9.98 -1.09 6.42 19.31 11.56
Average growth % 9.24

Thus share price = 1.77*1.0924*77.20 = $149.52


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