Problem 10. Scotts Miracle-Gro is the world’s leading supplier and marketer of d
ID: 2746032 • Letter: P
Question
Problem 10. Scotts Miracle-Gro is the world’s leading supplier and marketer of do-it-yourself lawn and garden products and is located in Marysville, Ohio. Although Scotts dominates many of its chosen markets, its profit margins are mediocre. Use the following information on Scotts and five other similar companies to value Scotts’s common stock on November 1, 2007.
Scotts Miracle-Gro ($ millions)
Net income
$113.4
Number of common shares (millions)
63.9
Earnings before interest and tax
$156
Tax rate
40%
Book value of equity
$479.3
Book value interest-bearing debt
$1,118
Scotts Miracle-Gro
Central Garden & Pet
Energizer Holdings
Fortune Brands
Kimberly Clark
Newell Rubber-maid
Comparison of Scotts Miracle-Gro with Comparable Companies:
5-year growth rate in sales (%)
9.8
9.2
14.1
8.5
6.1
(3.0)
5-year growth rate in eps (%)
6.1
(20.2)
21.1
9.5
5.1
3.1
Analysts’ projected growth (%)
10.3
NA
13.5
9.0
7.5
9.3
Interest coverage ratio (X)
2.7
2.1
5.8
4.7
11.5
6.5
Total liabilities to assets (X)
0.79
0.53
0.82
0.65
0.73
0.67
Total assets ($ millions)
2,277
1,647
3,553
15,055
18,324
6,591
Indicators of Value
Price/earnings (X)
19.5
20.1
15.8
16.7
16.0
MV firm/EBIT (1 – Tax rate) (X)
7.6
11.2
9.1
10.4
10.6
Price/earnings (X)
21.5
19.1
15.3
16.8
16.9
MV firm/EBIT (1 – Tax rate) (X)
18.2
20.2
17.1
16.5
17.8
MV equity/sales (X)
0.3
1.8
1.6
1.6
1.2
MV firm/sales (X)
0.7
2.3
2.2
2.0
1.6
MV equity/BV equity (X)
0.7
9.5
2.4
5.9
3.6
MV firm/BV firm (X)
0.7
2.2
1.2
1.9
1.5
Note: MV = Market value; BV = Book value. Market value is estimated as book value of interest-bearing debt + market value of equity. Earnings are fiscal year earnings.
Scotts Miracle-Gro ($ millions)
Net income
$113.4
Number of common shares (millions)
63.9
Earnings before interest and tax
$156
Tax rate
40%
Book value of equity
$479.3
Book value interest-bearing debt
$1,118
Explanation / Answer
ANSWER.
value of common stock of one share of scott= 479.3/ 63.9 = $ 7.5/ share