You have obtained the following information about five companies and a target yo
ID: 2714843 • Letter: Y
Question
You have obtained the following information about five companies and a target you wish to value, Bakal Distributing. Additional information:
• Bakal had earnings of $751 million in 2000. Earnings were not unusual in this year.
• Expected earnings growth is similar for Bakal and the five comparable companies, all of which distribute computer components.
Price per Share
2000 EPS
Robinson Co.
$ 15.00
$1.01
Jordan Corp.
$ 30.00
$2.85
Ewing, Inc.
$ 27.50
$1.73
Barkley Co.
$ 17.00
$0.78
Pippen Co.
$100.00
$7.21
As part of the analysis, you discover that Jordan has a long-term sales agreement with a major computer components manufacturer, which significantly affects the economics of the business. Neither Bakal nor the other comparable firms have a similar agreement. Barkley’s EPS is after an extraordinary loss from Hurricane Charles. The loss came to $0.33 per share after taxes.
Use a PE analysis to estimate Bakal’s value.
Price per Share
2000 EPS
Robinson Co.
$ 15.00
$1.01
Jordan Corp.
$ 30.00
$2.85
Ewing, Inc.
$ 27.50
$1.73
Barkley Co.
$ 17.00
$0.78
Pippen Co.
$100.00
$7.21
Explanation / Answer
Compute the PE ratios of the company Particulars Price per Share(P) 2000 EPS P E Ratio (P/EPS) Robinson Co. 15 1.01 14.85148515 Jordan Corp. 30 2.85 10.52631579 Ewing, Inc. 27.5 1.73 15.89595376 Barkley Co. 17 0.78 21.79487179 Pippen Co. 100 7.21 13.86962552