Question

We have gathered the following information on Cheesecake Factory

• 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 = $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     
      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

1. H Model Price

2. Non-Constant Dividend Valuation Approach

First we will calculate the dividend for that year until 6th year and then terminal value. Once we find these value, we will discount then to present value and add them to get the final ans.

3. Relative valuation

3.1 Historical PE, PB, and EV/EBITDA

3.2

Comparative PE, PB, and EV/EBITDA