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Discount-Variety Stores Industry Module 13: Full-Information Forecasting and Valuation

Discount-Variety Stores Industry Module 13: Full-Information Forecasting and Valuation Kate Johnson. Professor Easton or Jeremy,. In order to have readable slides in the case that I present, I do not provide paragraph explanations for my assumptions They will be in my report

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Discount-Variety Stores Industry Module 13: Full-Information Forecasting and Valuation

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  1. Discount-Variety Stores Industry Module 13: Full-Information Forecasting and Valuation Kate Johnson

  2. Professor Easton or Jeremy, • In order to have readable slides in the case that I present, I do not provide paragraph explanations for my assumptions • They will be in my report • If I do present, I will thoroughly explain each.

  3. “Save Time. Save Money.” • Largest discount retailer in the US by number of stores • Goodlettsville, Tennessee • 11,000 stores • 40 States • Southern, Southwestern, Midwestern, Eastern US • Merchandise is typically $10 or less • Founded in 1939 • Stock publicly traded in 2009

  4. Product Types • Two brands: 1)High quality nationalbrands from leading manufacturers 2)Comparable quality privatebrand selections 10,000 SKUS/store 10$ or less

  5. How are they profitable? • Convenient Locations • Time Saving Shopping Experience • Everyday Low Prices on Quality Merchandise • Key items in a broad range of general merchandise categories • Most basic shopping needs are met in one trip

  6. Discount-Variety Stores **Costco is least comparable

  7. But DG is a Dollar Store? • Dollar General is more suited to be compared with Walmart, Target, and Costco, as not everything is $1 (DLTR) and they have produce (unlike FDO) • Characteristics such as industry and size are often chosen for comparable

  8. EPAT Multiple

  9. NEA Multiple

  10. Sales Per Square Foot and NEA Multiple

  11. Cost of Debt

  12. A Note On DG Data • DG didn’t go public until 11/12/2009 • Therefore, only 51 months of data • Simple regression used (X=IV, S&P, Y=DV, DG)

  13. Regression (Monthly) Very low β α 95% Confident that Beta falls between (-.22, .69)

  14. Return on the Market • Despite the fact that the PowerPoint was using a value around 7%, I believe that a more accurate return on the market is around 4.5% • The market has been predicted to not grow as much in the future • Analysts estimate the value around 4%-5% • Therefore, I chose 4.5%

  15. Cost of Equity Calculation

  16. WACC

  17. Market Value of Equity

  18. Full Information Forecasting

  19. Full Information Forecasting

  20. Hold

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