FIN321 - HW6

xlsx

School

Drexel University *

*We aren’t endorsed by this school

Course

321

Subject

Finance

Date

Jan 9, 2024

Type

xlsx

Pages

Uploaded by rhchoi

1. Due to the Covid-19-Pandemic household grocery consumptions have increased. Two of the major players in th Wholesale (COST-US) and BJ’s Wholesale (BJ-US). Using FactSet’s Calendar and Company/Security tab answer the fo these two companies (total 2 points): a) When did Costco’s and BJ’s latest earnings calls happen? (Also note the times of these calls). (0.25) b) According to the date and time of these calls, Costco’s earnings call will affect which date’s stock price? How a c) Did the companies beat their set benchmarks (Remember, Mean is the set benchmark and Act is the actual Ea you see any discretion in these numbers? (0.25) d) Which of these stocks is cheaper (Hint: use forward-looking P/E ratio to answer this)? (0.1) e) Would you buy this cheaper stock? Why/why not? (0.15) f) Perform a relative valuation on these two stocks based on their P/E ratio, systematic risk, and growth estima you buy? (0.45+0.45+0.1) a). Costco Earnings Call Reported Date as Of: May 28, 2020 5 PM BJ's Wholesale Earnings Call Reported Date as Of: August 20, 2020, at 8:30 AM (EST) b). The Costco's earnings call has an impact to the stock price. Costco's earnings call was on Thursday night releasing have beaten their forecast for earnings. This means that Costco will have a higher stock price the next opening day F have exceeded the forecast shoiwng positive financial health in their stock performance. Also, BJ's earnings call was Their earnings call affected the market that same/next day goinng forward as it was reported that they exceeded th quite a lot dollar amount wise. This will correlate directly with the markets as the company's financial health is refle c). Costco beat their earnings forecast with a surprise of about 1.76%. Over the last quarters, the company has surpa times nearly. In the end of November 2019, they reported revenues of $37.04 Billion missing an estimate of 0.78%. Costco has reaped the benefits of a helathy stock price rising. BJ's Wholesale also beat their earnings forecast of $3. their actual $3.87 Billion. The company experienced a positive surprise and a price to earnings ratio of 21.8. d). Costco P/E (Taken from Factset): 41.42 as of date AUG27-2020 BJ Wholesale P/E (Taken from Factset): 21.73 as of date AUG27-2020 The cheaper stock is BJ Wholesale Club as the P/E ratio is much lower. Costco last traded at $346.36 a share while B e). I would not but BJs but rather purchase Costco's stock. This is because although BJ's is cheaper, Costco's stock wi healthy as the Corona Virus Pandemic has acted as a positive buffer for the company with the whole DIY culture. Fro Costco is also having a high P/E ratio inidicating their higher earnings beat this year from their last release. They hav as well as stable stock performance being quite linear over the last months.

Company Name Costco Wholesale BJ Whsl Cl Hldg Average Median f). I would choose Costco's stock over Bj's. This is because Costco's overal P/E ratio is much larger than BJ's. BJ's P/E small their trading price per share of equities are significantly lower than costco. Costco maintains a steady increase getting larger and larger which can indicate a higher earnings reflection. Costco's stock will continue to go up as ther consumers purchasing from Costco due to the COVID19 pandemic's influence on the DIY culture. Based off of the ea beeen proven that Costco has exeeded their goals with their forecast ultimately beating what was initially intended their stock and future performance. With massive sales and larger revenue gains, Costco will be in a great place for increased demand due to the pandemic conditions. From a risk standpoint, BJ seems to have much more risk than C beta by financial leeveraging. From a growth standpoint, BJ's could have a higher grwoth prospect short & long term

Robert Choi FIN321 HW6

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Shares Fiscal FY Shares Market Outstanding Enterprise Period Price End Outstanding Value Diluted Value Sales 05/10/2020 346.36 09/01/2019 441.5 152,926.0 443.9 154,064.0 160,876.0 08/01/2020 46.86 02/01/2020 137.9 6,464.0 139.5 9,597.1 14,453.5

Earnings Earnings Earnings Price to Beta to Earnings per Share per Share per Share Earnings Total Loc Indx Tax per share NTM FY1 FY2 NTM Debt 3 Year Rate actual 9.36 8.57 9.37 37.02x 9,095.0 0.59 24.5% 8.4% 0.56 2.50 2.65 2.38 18.74x 1,152.2 0.46 23.9% 2.2% 0.40 2.50 2.65 2.38 18.74x 1,152.2 0.46 23.9% 2.50 2.65 2.38 18.74x 1,152.2 0.46 23.9% Bu* 0.48 unlevered beta

5.95% 0.00 5.85 1.12 Costco 17.83% 0.00 11.0825 1.16 BJ's Financial Leverage D/E Relevered Beta Long-term EPS Growth factset consensus Short-term EPS Growth factset consensus

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

a). Dividends for Next Period: D1 : 4.5 b). 2. In class we completed the Fundamental Valuation for Lowe’s using Gordon Growth model. Use the same proced to find out the intrinsic value of HD: a) What will be the next period’s Dividend (D for NTM)? Which quarters’ dividend does this value reflect for HD? (0.2) b) Look at the latest 10-K of HD (FY 2019 Report from 25th March 2020) for share repurchases next period. (Hint Look for the following statement: In March 2020, we suspended our share repurchases until such time as we deem appropriate.) So, will there be any repurchases next quarter (check from the most recent Q-10 Report-Q1 quarter Filing-27th May 2020)? (0.1) c) Based on the above info, what will be HD’s expected total shareholder payout per share? (0.2) d) Assuming that the perpetual growth rate is 2.33%, what is HD’s IV today? (0.25) e) Is this stock overvalued or undervalued? How would you trade on this mispricing? (0.15) f) What is the convergence return for HD? (0.1)

d). e). f). Based on the above screenshots that were retrieved from the company's 10K/Q-10 reports, Home Depot decided to suspend share repurchases in March 2020. As of August 2020, they had $7.1 billion for share repurchases. The key t to keep in mind though is that the they decided to suspend share repurchases starting in March 2020. Thus, I do not believe there will be any repurchases next quarter as the Pandemic still continues to exist and flourish. c). The current shares outstanding based off the 10K-Q2 Filling are 1077 million approximately reported at the time. Therefore, the per share payout will be around $7.15 (calculated by dividing 7.7 billion by 1077 million).