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Simple Analysis and Parsimonious Forecasting

Simple Analysis and Parsimonious Forecasting. Vernon Gair. About the Company.

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Simple Analysis and Parsimonious Forecasting

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  1. Simple Analysis and Parsimonious Forecasting Vernon Gair

  2. About the Company • Aéropostale, Inc. is a primarily mall-based, specialty retailer of casual apparel and accessories, principally targeting 14 to 17 year-old young women and men through its Aéropostale stores and 4 to 12 year-old kids through its P.S. from Aéropostale stores.

  3. Implied Price Per Share

  4. Recalculation of WACC

  5. DCF Valuation

  6. Valuation Using REI

  7. Valuation Using Abnormal Enterprise Income Growth

  8. Abnormal Income Growth • The abnormal enterprise income growth model anchors the accounting information based valuation on the capitalized forecast of next-year’s EPAT, as opposed to current NEA • Abnormal enterprise income growth explains the premium of market value over capitalized EPAT

  9. Valuation Using AIG

  10. Choosing a Valuation Model

  11. Conclusion • All three valuation method arrive at the same estimated enterprise value. • The abnormal enterprise income growth model anchors the valuation on the capitalized forecast of next-year’s EPAT. • The abnormal enterprise income growth model captures 97.5% of ARO’s value in the 9 year forecast horizon. • Must forecast out two years after steady state is reached. • Note shift in discount factors, as all value to be capitalized is discounted an additional year

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