1 Running head: Milestone Two
5-1 Final Project Milestone Two: Stock Analysis and Portfolio Development
Samantha Sammartino
Southern New Hampshire University
FIN 340: Fundamentals of Investments
22 November 2021
2 Milestone Two
II.
Stock Analysis:
Symbo
Beta
Annual Dividend
Earnings Sales Free cash 5 Yr. per share per flow per Dividend share share Growth $6.23 83.23 $17.59 13.7 $1.79 8.77 $2.05 8.3 $3.08 14.19 $4.55 21.1 $6.08 64.66 $4.25 N/A $3.37 20.88 N/A
Average Average FCF Industry Industry Growth P/E Ratio P/S Ratio (g) 23.7 1.12 2.6% 22.6 2.2 6.5% 20.5 4.45 10% 52.5 6 N/A 41.8 3.58 17%
IBM 0.86 KO 0.66 ORCL 1.1 NFLX 1.57 AKAM .34
$6.56 $1.68 $1.28 N/A N/A
A. IBM: The company's dividends have recently been irregular, but the last few
years have shown a strong, increasing cash flow (Macrotrends, 2021). Therefore,
the value of IBM is found using the free cash flow to equity model.
Value of IBM =
Value of IBM = 0.897B =$281.79
Expected return 0 =
Expected return = 0.0075 + 0.86 (0.09 - 0.0075) = 7.85%
B. KO: The Coca-Cola investor page (2021), shows how the company's dividends
grow at a constant rate and are expected to continue to do so in the future.
Therefore, the value of KO is found using the constant growth dividend valuation
model.
Value of a share of stock =
Value of K0 = 1.72 / (0.09 -- 0.010) = $68.80
Expected return 0 =
Expected return = 0.0075 + 0.66 (0.09 - 0.0075) = 6.2%
C. ORCL: The company's dividends continue to grow at a constant rate, as seen on
Nasdaq (2021). They also have a high 5-year dividend growth rate, but their free
cash flow growth rate of 10% is higher than the required return rate of 9%.
3 Milestone Two
Therefore, the value of ORCL is found using the price-to-earnings (P/E)
approach.
Value of a share of stock = EPS x P/E ratio
Value of ORCL = 3.08 x 20.5 =$63.14
Expected return 0 =
Expected return = 0.0075 + 1.1 (0.09 - 0.0075) = 9.83%
D. NFLX: The company is still in the growth stages and does not pay dividends
Netflix also has very strong earnings (Stoll, 2021). Therefore, the value of NFLX
is found using the price-to-earnings (P/E) approach.
Value of a share of stock = EPS x P/E ratio
Value of NFLX = 6.08 x 52.5 =$319.20
Expected return O =
Expected return = 0.0075 + 1.57 (0.09 - 0.0075) = 13.7%
E. AKAM: This company also does not pay dividends, but has a high free cash flow
growth rate. However, Akamai Technologies has a few negative free cash flows in
the past, "which makes it extremely difficult to predict the cash flows for the next
five to ten years" (Nguyen, 2021). Therefore, the value of AKAM is found using
the price-to-sales (P/S) approach.
Value of a share of stock =
Value of AKAM = 111.94 / 20.88 =$5.36
Expected return O =
Expected return = 0.0075