Research Project 2

Note: For this and any other exercise that relies upon database information and website access, please notify your instructor should directions and links not work.  

  1. Select ONE of the four companies provided by your professor for analysis.
  2. Follow these instructions to access the Mergent Online database:
    1. Access the library website (Links to an external site.).
    2. Select Databases.
    3. Click Database by Name, then search for Mergent Online.
    4. Inside Mergent, search for companies information in the main Company Search search box by name of ticker symbol for public companies.
    5. Click on each companys name to open its main page.
  3. Constant Growth Model:
    1. On the main page, choose Company reports, the furthest right hand, green tab.
    2. Select Fundamental Report by selecting it and using Download.
    3. On page 5 of the Fundamental Report, locate the Dividends Per Share TTM chart and narrative. The chart and narrative provide the historical cumulative rate of growth in dividends for the selected company. Use the stated CAGR from the graph as the growth rate (g) for your Constant Growth Model valuation.
    4. Assume a 10.5% discount rate (R).
    5. Calculate an estimated value of a share of the stock using the Constant Growth Model (Eq. 8-3 in the e-book).

By using the historical rate of growth in the dividend, the assumption is that the company will sustain its recent rate of dividend growth into the future.

  1. Stock Valuation Using Multiples:
    1. From the selected companys main page, select the Company details tab and then choose Earnings estimates.
    2. On the left-hand side of the screen, note the number of analysts and the number of Buy, Hold, and Sell Recommendations in the Broker Summary.
    3. In the Ratios and Statistics section, retrieve the Forward P/E as an input for your Stock Valuation Using Multiples.
    4. Record the Average Target Price and the direction it has taken during the last four weeks (raised or lowered, indicated by orange/green arrows).
    5. In the Consensus Summary the companys annual Earning Per Share appear, both Actual (A) and as Estimated by analysts (E). Historical results (A) by year should be evaluated versus full year estimates for future periods (E). This data appears in the Consensus Estimates Summary by period.
    6. Calculate an estimated value of a share of the stock using multiples as determined by Eq. 8-8 in the e-book. Use the Forward P/E as the Benchmark PE in the model. Calculate the estimated value for each year that a Consensus Estimate of Earnings per Share appears in Mergent.

For example, suppose the Forward P/E is 27 and there are Consensus Estimates of $2.06 in 2021E and $2.25 in 2022E. According to the model, P1 would be $55.62 and P2 would be equal to $60.75. As described in the text, forecasted prices such as these are called Target Prices.

  1. Current Stock Price:
    1. To make comparisons to the current stock price, go to the Equity pricing tab. There you can see the recent closing price, a High, a Low, and an Average, among other statistics.
  2. Write a 3-4 page paper (approximately 600 words) in APA format that includes:
    1. A brief description of the company: Which company did you choose and why is it of interest? Does it manufacture interesting products or provide innovative services? Have recent news events brought this company to your attention?
    2. A compare and contrast of the estimated stock value from your Constant Growth Model to the current stock price.
    3. Your calculations from the Constant Growth Model along with the current stock price.
    4. A paragraph on changes to the inputs that would allow your Constant Growth Model to provide a value consistent with the current stock price. What change in the dividend growth rate could be used to equate to the current stock price with the discount rate provided? Would a change in the discount rate, higher or lower, influence the valuation? How?
    5. An explanation as to why the estimated stock price from your Constant Growth Model should or should not be relied upon given the inputs you used.
    6. Refer to the observations made in Action Item 4 regarding analyst Average Target Price and Recommendations. Is there a clear recommendation? Your response will demonstrate that you have examined the Broker Summary in Mergent.
    7. A compare and contrast of the Target Prices from your Stock Valuation Using Multiples to the current stock price. Show your calculations along with the current stock price.
    8. Answers to the following:
      • Would you invest in this stock? Why or why not?
      • Based on your valuations in the Research Project, would you characterize your stock as undervalued or overvalued? Explain.
  3. Submit the completed first draft of your assignment. Your work will automatically be checked by Turnitin.
  4. Access your Turnitin report by reviewing your Submission Details for this assignment. Revise your work as needed based on the feedback.
  5. By the due date indicated, re-submit the final version of your work.
My company is Campbell Soup.
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