comprehensive stock valuation project
The finance internship course is composed of a stock valuation project for international students that do not have permission to work in the U.S. The main outcome of the project is an Internship Report. The grade for the course depends on the quality of the report in terms of accuracy, analyses, completeness, organization, writing, and relevance. Based on your analyses, you are expected to answer each of the project related questions and address each of the issues mentioned in the following. Pick a publicly-owned, dividend-paying firm from the Dow Jones Industrial Average (DJIA) stock market index. The chosen firm must be both publicly-traded dividend-paying. Use the financial data for the firm and industry using Bloomberg terminals in the Capital Market Lab. Use appropriate dividend discount/growth model to find the intrinsic value of the stock. Review the assumptions of the model. In calculating the growth rate for the firm, use sustainable growth rate method. For estimating the required return, use the capital asset pricing model (CAPM). As an estimate of the risk free rate, use the current yield to maturity of a 10 year T-bill. Estimate firm beta using the simple market model in excel. You may use one of the two ways to calculate Beta using Excel. The first is to use the “=slope” formula: the X variable series is the return on the market and the Y variable series is the return on your chosen stock. A second alternative is to calculate the Beta directly as the covariance between the two return series, divided by the variance of market returns. Find the actual stock price on December 31, 2018 using Bloomberg terminals. Compare your estimated intrinsic stock value to the actual December 31, 2018 stock price. Does the market undervalue or overvalue the stock? Based on the above analysis, do you plan to undertake any transaction (buy/sell) in the stock? Why or why not?
Instructions:
Consistent with the university academic integrity policy, your submission MUST be your original work.
There is no page limit for the Internship Report. The length of the report depends on the work needed in completing each of the components of the project.
In the report, besides valuing the firm’s stock, include an overview of the firm and its financial position in comparing with the major competitors in the industry.
Show your work/calculations when possible.
The financial statements along with other required financial data are available on Bloomberg. Sample Internship Project Report Contents: Cover Page Report Objective Firm Overview Industry Analysis Dividend Discount Method Dividend Growth Model Security Market Line Beta Selection Stock Valuation based on Dividend Growth/Discount Model Trading Recommendations Conclusion References Appendix
