Suppose a company is expected to generate earnings per share of $3 next year. The average PE
ratio of comparable firms is 12. Estimate this company’s stock price using the comparative
(relative) valuation approach.
Market Value of Debt (million) $2,000
Number of Shares Outstanding (million) 150
Enterprise Value
Comparable Companies MV Enterprise
as Multiple of:
Equity Value EBITDA EBIT EBITDA EBIT
A $13,600 $22,000 $3,500 $2,200
B $1,330 $1,800 $200 $130
C $1,600 $2,000 $400 $210
Median $1,600 $2,220 $400 $210
Mean $5,510 $7,907 $1,367 $847
PCP $3,000 $2,600
Intrinsic Value - Median
Implied Value - Mean
Compute the share price of PCP using the median EBITDA and EBIT multiples of the
comparable companies.