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Valuing Coca cola stock

coca cola presentation

Shihao Wu

on 11 September 2014

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Transcript of Valuing Coca cola stock


Team members :
Hang Dang
Lulu Wang
Liqing Zhang
Stephen Malachowski
Shihao Wu
Risk-free bonds
90 days treasury bill
5 year bond
10 year bond
30 year bond
Dividend Discount Model (DDM) Cont'd

G @ foretasted 12%

G @ historical rate 10.60%

Dividend Discount Model (DDM) Cont'd
Growth rate

Dividend Discount Model (DDM) Cont'd
Calculate dividend

Price/Earnings Multiple
Q & A
1. Capital Asset Pricing Model(CAPM)
2. Dividend Discount Model(DDM)
3. Price/Earnings Multiple(P/E)
Sensitivity Analysis & Results
Sensitivity analysis for raw vs. adjusted, risk-free rate proxies
Our Focus and DDM
The 5-year estimated required rate of return
- Match time horizon with proxy
Adjusted Beta
- Mean reversion and historical trends

Po=D1/( R-G ) $50.41 estimated, $58 actual
P/E Multiple Method & More
Coca Cola: P/E of 35 and an estimated EPS for 1998 of $1.95.
- Po = EPS1 * P/E = $68.25, $58 actual

Slight differences between the two valuations

- Overpricing/Underpricing
- Accounting Forecasts vs. Cash Dividend Forecasts

Found in 1886, Atlanta, Georgia
1997, A large beverage company
Jessie Jones
Make a recommendation for investors
1. Introduction
2. Methodology
3. Analysis
4. Recommendation
We choose DDM valued Coke's stock at $50.41 invest moderately.
Only small difference, Coke is growing.
P/E showing a stock price of $68.25

The market is undervaluing Coke

Invest if you like risk.

BOTH models are only estimates.

Never lose your money
Rf = risk-free rate
B = Beta of security
Rm-Rf = the market premium
adjusted Beta vs raw Beta
0.67*Raw beta + 0.33*1
Adjusted beta =
1. Raw beta & history data
2. Mean reversion
* No historical data
* Too long
Course: Advanced Financial
Professor: Lei Wedge
Dividend Discount Model
Po=D1/( R-G )
Earning per share/Book per share
ROE* Plowback ratio=1-
Discounted future dividend
P=EPS*P/E multiple

for $1 profit
Varied (time & industry)
compare prices
Full transcript