Homework Question on Valuation and Investment Analysis
- You will select a firm/stock and perform a Valuation and Investment Analysis.
- You must select one of the companies that you contributed to your team portfolio.
- You will make a recommendation based on your complete analysis. Your analysis should include (but is not limited to):
- Your recommendation and 1 year target price.
- An explanation of the key inputs and assumptions that support your financial analysis (such as industry and market share trends, end market growth rates, expected growth rates, profitability levels and trends, business drivers, risks, competition, etc.)
- A valuation analysis of your selected firm. Use the Operating Free Cash Flow method and Relative Value method to arrive at the fair value of the company. This should include the use of appropriate historical ratios and forward ratios. Develop financial statement forecasts with key line items to support your analysis.
- An explanation of your conclusion and how it compares to investor expectations for the company.
- A recommended option hedging strategy based on your 1 year target price. Assume you own 1000 shares of the stock. Select either a covered call strategy or a protective put strategy. Calculate the outcome assuming the stock attains your 1 year price target.
- A recommended Protective Put or Covered Call Strategy based on your 1 year price target. Calculate the outcome assuming the stock attains your 1 year price target. Use 100 contracts for your option quantities.
- The analysis will be 2-3 pages plus exhibits. Be sure to cite all sources of input.
Homework Answer on Valuation and Investment Analysis
Nordstrom Inc. is a fashion specialty firm based in the U.S.; it deals mainly in apparel, shoe merchandise, perfume and other cosmetics products, and accessories for all groups – women, men, and children. It has over 242 outlets in various states of the United States, as well as an e-commerce department, through its marketing website, Nordstrom.com. The company’s sales strategy is divided into two segments; retail and Credit departments.
The integration of these full line stores and the online segment was targeted at giving its customers a seamless shopping experience. The company has other outlets in various other countries, a credit and debits cards system applicable in all its outlets as well as the online store (Andrew, 2014). In the most recent annual turnover report, the Nordstrom’s JWN closed its market capital at $14.18bn at a market price of 74.33 cents per share.
It has however exhibited slight decline in valuation change, dropping at the rate of -0.24%. These show fundamental and price action for the ending year. The Nordstrom Inc per share index recorded slight decline in the running quarter as compared to the earlier quarters of the year 2014. This business depicted fairly unstable income in the recent financial period. During the past fiscal year, Nordstrom Inc increased its bottom line by earning $3.72 versus $3.56 in the prior year (Dow, 2014).