Investment Banking Interview Question of the Week #12

Question #12

When should you value a company using a revenue multiple vs. EBITDA?

ebitda and revenue

 

As always, please feel free to email in your answers to be posted (jufiberclub@gmail.com), reply in the comment box below, or email and Tweet this question to someone who may want to take a stab at it!

Posted by Drew Hutcheson
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Stock of the Week #8: Pfizer (PFE)

By: Prem Samritpricha

2000px-Pfizer_logo.svgpfe chart

2 Reasons to Buy the Stock:

  • Ibrance drug to drive top-line growth
  • High possibilities of the stock thriving in the near future

Summary:

This summary focuses solely on highlighting Pfizer’s drug Ibrance and how it is changing the landscape of treating breast cancer. Breast cancer is currently one of the most lethal diseases in America. Sadly, according to breastcancer.org, around 12% of women will pfe postacquire breast cancer in their lifetime. In 2015, there were 231,840 women who were diagnosed and of those, 40,290 died. In 2016, these numbers are increasing at a rate of 6.4%, with a .4% rise in death. On February 3, 2015, the Food and Drug Administration also known as the “FDA” granted Ibrance, one of Pfizer’s leading breast cancer drugs. It has been proven that patients who were given Ibrance live on average 20.2 months longer deprived of breast cancer and without Ibrance, 10.2 months.

Ibrance already has a good reputation as it has been recommended by 5,000 physicians and is currently being taken by over 20,000 patients. The feedback has been tremendous and has a huge effect on patient’s quality of life. At this, Ibrance is booming in Europe, so much so that it is apparent this particular drug is what is going to be key in Pfizer’s growth.

 

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Stock of the Week #07: Dow Chemical (DOW)

By Prem Samritpricha

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dow chart

3 Reasons to Buy the Stock:

  • Changes in business model
  • Higher margins led to higher profits for fiscal 2015
  • Upside potential

Summary:

Dow Chemical (DOW) has been making smart and clever moves. Since 2015, the company has changed a couple things to its business model with the most efficient move being to focus on high growth and high margin markets. The company distinguished the first polyethylene product conveyed from its Sardara joint venture plant, alongside with starting up the world’s largest propylene facility.

2015 proved to be a very decisive year for DOW as the company dumped its direct DOX compsownership of MEGlobal. It declared a reformation of Dow Corning Silicones, and split off Dow Chlorine Products and vended the AgroFresh, Sodium Borohydride, and ANGUS businesses. These moves made a huge difference, raising its margins over the past 13 consecutive quarters, increasing its earning and strengthening their cash position. In 2015, the company produced earnings per share growth of 9%, up to $2.94 compared to 2014.

The company’s cash on their balance sheets continues to steadily grow as a result of the aforementioned. Specifically, DOW’s full year managing cash flows went up by 16%, and up to $7.5 billion compared to 2014. DOW also sports a healthy dividend and is shareholder friendly having repaid $2.7 billion to investors with share buybacks and dividends in Q4 of 2015 alone. We see the strength in their new operating focus as a quality investment idea and believe DOW is set to climb higher in 2016.

Stock of the Week #06: RRD

By Prem Samritpricha

rr-donnelley-sons-company-logo-lms
rrd chart

3 Reasons to Buy the Stock:

  • Growing free cash flow amount
  • Change in industry
  • Dividend payout ratio cash flow bridge

Summary:

RRD is a worldwide provider of combined communications. The firm deals with over 60,000 customers worldwide to be able to better custom communication resolutions. In 2015, the company’s net sales were 11.39 billion with a non-GAAP adjusted EBITDA margin of 10.6%. Therefore, the free cash flow was in the $400 to $500 million range.

The difference that RRD is making is changing the industry, because they were sufferingrrd comps from decreasing product volumes and competitive pricing dynamics. The company’s legacy distributing and retail services business, which includes magazines, catalogs, retail, books, and directories, still accounts for almost 25% of their sales. RRD is also the biggest printer in North America, with the largest product and service contribution. The US printing market, discounting newspaper is roughly a $125 billion dollar industry. With RRD’s diverse service offerings, they are in a good position to keep and increase market share.

RRD’s dividend payout ratio is progressive and seizes the trajectory of the company’s free cash flow production and dividend growth. With the strong net cash amount on their balance and a business model that keeps producing a substantial amount of free cash flow, RRD is in a good position to continue paying and even increase their dividend in the long run.

Stock of the Week #05: F

By Prem Samritpricha

F imageF chart
3 Reasons to Buy the Stock:

  • Strong dividend which could increase
  • Attractive price with strong lines of business
  • Low energy prices will continue to make for a healthy auto industry

Summary:

Even though Ford’s share price has been struggling, we believe there are some underlyingF SOW items which makes the company an attractive investment right now. Ford is a dividend paying machine giving its share price a floor to its intrinsic value and we believe Ford could raise it’s dividend this year. Add together Ford’s $.60 dividend with the $.25 special dividend which was just revealed and its yield jumps to more than 7%.

Primarily using Ford’s historical P/E, we believe it’s currently undervalued. Ford’s normal P/E over the last 5 years is just short of 10, with the least being around 2 and the highest being around 20. The lowest analyst estimate is $14, but the average analyst estimate for the stock is almost $17. Thus, if Ford is in-line with their average P/E it will trade around $15, which is an increase of about 30% from current levels.

With oil and gas looking to remain low for the foreseeable future, the derivative effect will continue to be a boost to the auto industry, further benefiting Ford. The low prices have helped the increase in vehicle renovations amongst consumers, and it reduces the input costs for the company.

You can also find this write up on:

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*Disclosure: Stocks discussed to watch are strictly the JU FIBER Club’s opinion and not a recommendation to buy or sell positions.