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By: Se Kim

By: Se Kim. By: Se Kim Module 3: Market Multiples January 26, 2014. Trading Liquidity. 3,242MN shares outstanding at $74.42 at close on January 24 th Market cap: $240.81BN Avg. volume: 1.8MN January 31 st ,2013 – end of fiscal year $68.27 March 26 th , 2013 – release 10-k $73.45.

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By: Se Kim

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  1. By: Se Kim By: Se Kim Module 3: Market Multiples January 26, 2014

  2. Trading Liquidity • 3,242MN shares outstanding at $74.42 at close on January 24th • Market cap: $240.81BN • Avg. volume: 1.8MN • January 31st,2013 – end of fiscal year • $68.27 • March 26th, 2013 – release 10-k • $73.45

  3. Market Multiples • Value = Performance measure x market multiple • BS: Net Enterprise Assets, Book Value, • IS: Enterprise Profit after Taxes Net Income, Comprehensive Income, Sales • Comparable Companies: • Cabela, Hibbett, Target

  4. Net Enterprise Assets • $147.00 vs. $73.45 or $68.17 • HIBB’s market multiple is an outlier • WMT’s estimate is about twice as much as the market price

  5. Book Value • $136.43 vs. $73.45 or $68.17 • BV = NEA - NFL • Market price is significantly undervalued • Companies do not have similar capital structures

  6. EPAT • $141.94 vs. $73.45 or $68.17 • CAB has a high multiple, bringing the average up

  7. Net Income • $101.68 vs. $73.45 or $68.17 • Market price is undervalued • TGT has a drastically different NI multiple

  8. Comprehensive Income • $245.96 vs. $73.45 or $68.17 • High variability affects the multiple calculation • Irrelevant b/c of the irregularity

  9. Revenue • $224.33 vs. $73.45 or $68.17 • Revenue is inconsistent – about 7 times bigger than its closest competitor

  10. Combination vs. TGT • $67.10 vs. $73.45 or $68.17 • Excluded CI & Revenue • Market price is slightly overvalued using TGT’s market multiples

  11. Recommendation • Upon analysis: HOLD • WMT valuation using all three comparable companies paint an inaccurate picture • Comparing WMT w/ only TGT – a more consistent valuation • $67.40 vs. $68.17

  12. Questions??

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