125340 Stock Report Instructions

2024 Semester 2

Overview:

This stock report is intended to be a sort of “capstone” assignment, that not only brings to bear much of what you have learned in 125340, but also what you have learned in other previous courses such as accounting, economics, marketing and management.  We recognize that this is a substantial amount of work, which is why it constitutes 30% of the course grade. However, if done well, it will be a highlight of your learning experience at the University.

Those who fully commit to this project will produce a report that they can proudly present to prospective employers. Many of our students have done exactly that and secured job interviews based on their work.

We understand that you may have your own preferences in choosing stocks for the stock report project.

Instead of assigning an individual stock to each of you, we have decided to let you choose your own

preferred stock for your stock report. We recommend that you choose a public US company from S&P500.

Please also consider the necessary data required for stock valuation and analysis, make sure you have access to the data from public sources (e.g. Yahoo Finance, MarketWatch, company’s website, annual reports, etc.).

You must use “125340 Written Report Template” AND

The “125340 Stock Report Spreadsheet Template”

Other formats will not be accepted. We realize you may want to be more creative, but we have about 200 reports to grade, and it creates problems for us finding sections if you use different formats.

Maximum of 5-6 pages for main part of report (not including appendix).

Due Sunday October 6, 2024, 11:59pm. Submitted to Stream; will be automatically submitted to TurnItIn.

TurnItIn:

The TurnItIn ‘score’ will be used to scale your report grade, only if there is significant deviation from

“normal” copying.  e.g. if the average Turnitin score is 20% for the class, and your turnitin score is 30%

(meaning 30% of your report matches other online material), your final Stock Report grade will be 70% of whatever raw grade I assess. (I will ignore tables and references in that matching) .

Note that since final grades are scaled to a normal distribution, the only relevant number here is how you compare with classmates.

For your perspective, historically I have found that good reports have turnitin scores from about 10-20%.

Note in particular, what does not go well is to simply copy and paste from published sources into your

report.  Even copying a short phrase here and there will show up as matches. Iam not interested in what you found that someone else said about, say, Investment Risks.  Iam interested in your assessment and/or

summary of what someone else said. (I don’t expect you to conduct primary research, but Ido expect you to use your own words to describe/discuss what others have found)

If you cut/paste, even with editing, not only will that increase your TurnItIn score (which is bad), but I will ignore those sections in my assessment (as though you didn’tdo it), which also lowers your grade.

DETAILS OF EACH SECTION:

Page 1

Use this page as an executive summary, providing a concise overview of pertinent facts in the document. The rest of the report supports the information presented here. An investor should be able to review this page and gain a clear understanding of the most important facts and issues about the company, along with your assessment of its potential as an investment opportunity.

Important Notes:

•    At the top, include your name and a statement indicating that this is Student Research for 125340, to clarify that it is not intended as investment advice.

•    Include the Industry name and the Company name at the top.

•    Below that, provide descriptive information about the company, followed by your recommendation.

•    In Highlights, you list key features about the company. These can include positive statements about

management, new products, etc., or negative aspects such as warnings about potential risks. Think of

these highlights as what you would want to convey to a client if you only had 30 seconds to talk,e.g., so- called "elevator pitch."

Page 2 +

Business Description

In this section you describe the firm’s “story” .  What is their business/product, etc.?  Are there multiple segments of the business? What is their industry? Is there something about their history that is important (founding, mergers, …)? What  is their geographical coverage? Are there features about this company that sets it apart from the crowd?  Typically

(though there can be exceptions), discussion of management is not particularly special.

This business description section will usually be quite short, but after reading it, an investor should know what this company does, and have some idea about what you think is special about it (if anything).

Industry Overview and Competitive Positioning

In this section, you:

•    Describe the  industry  in which your target company operates. Explain what the industry does, identify major opportunities and risks that could impact the industry and of course also affect your firm.

•    Identify who are the major players? Here, you will identify comparable companies to use in the Relative Valuation section (aim for at least four).

•    Discuss your target firm’s market share, and if they have any competitive advantage.

Valuation

This is the section where you discuss valuation results.

•    You should use a minimum of 3 methods; you must use at least 1 relative valuation method and 1 absolute method.

•    These methods must be clearly labeled.

For Absolute method: DDM and/or DCF

• DDM: required for a B grade for this section

•    The analysis must be multi-stage, forecasting for four years, followed by a reasonable terminal cash flow as discussed in class. In the written report, you can elaborate on whether this terminal cash flow is valid or not. For details, refer to the lecture notes on multi-stage Dividend Discount Model (DDM) and the stock report spreadsheet template.

•    For “interim g” over first 4 years, use one of the non-historical methods for estimating g.  Explain here how you did that,and this must match what you do in the spreadsheet.

• DCF: required for a possible A grade on this section

•    Same as DDM, must be multi-stage.

•    Forecast cash flows should be shown in a table in the appendix along with the growth rates.

• For both DDM and DCF:

•    For the risk-free rate, use a constant 1%, or the actual rate for your market if you can easily get the data.

•    For the market return, use the arithmetic average annual return of the S&P 500 index for at least 20 years.

•    For terminal growth, use 2% (you can use something else, but state your assumptions) .

For Relative method: PE, P/B, P/EBITDA, etc.

•    Method(s) for forecasting PE must be stated.

•    If discuss comparable companies, those companies must be shown in appendix.

•    If discuss analysts’ recommendations, details must be in appendix.

Final Estimation: For each method, you will have an estimated target price.  From the 3 (or more) methods  you use, make a judgement call on what the final target price should be.  This will generally be a weighting,   where you place the most weight on the method you deem most ‘correct’, and least weighting on a method you feel has problems (e.g. due to input information available).  If you do this (recommended),include a

small table showing your weights.

Risks to the Estimation: Your target price (and therefore recommendation) are probably most sensitive to  some specific assumptions. Describe those here. This is not the place for firm risks, which comes later (see below).

This section should conclude with the same information at the top of page 1 – Target Price, Current Price, and Recommendation (buy, sell or hold).

Getting data and financial information: Collecting datahttps://www.google.com/finance/, https://finance.yahoo.com/andhttps://www.marketwatch.com/

Financial Analysis

In this section discuss anything pertinent to the financial statements. For example, if you have to do something special to estimate future growth, you would discuss that here.  Similarly, here is where to talk about DCF and what you had to do to get cash flows, or something unique about the earnings or dividend stream. This is also where to discuss ratio analysis pertinent to each of the financial statements.

Investment Risks

Just as important as identifying positive aspects, is identifying the negative aspects.   In this section, discuss risks to the firm, such as inflation, financial constraints, labor shortage, etc.

A brief summary of the most important ones will probably be on page 1.

Ethical issues

In your reading about the firm (news stories, annual reports, etc.), try to identify ethics issues that: 1) the firm has identified and how they are dealing with them, and/or 2) issues you observe that perhaps the firm has not acknowledged.

If you are unable to find anything, just say so in this section.

Cultural Issues

Discuss any strategies of the firm to develop business in international markets and any challenges on the cultural / ESG / CSR issues.

As above, if you are unable to find anything, just say so in this section. However, note that ESG is so common these days, it is unlikely that your firm has no issues or mention in their annual report.

Appendixes

•    In general, tables that are too big for the main text, such as comparable companies, DCF details,

potentially other tables you deem necessary. Do NOT include financial statements (that will be in your spreadsheet).

•    Any table included here should be discussed (or at least mentioned) in the main text. Do not add interesting tables just to add pages.

Assessment

Total 100-point report worth 30% of course grade. Out of 100 points:

10        Complete and professional looking, using correct templates

5         Page 1

5         Business description

5         Industry overview

60       Valuation and Financial Analysis

5         Investment risks

5         Ethics & Culture

5         Clean & useful appendices

100      Total

All sections and sub-sections will be graded on a 5-point Likert scale; then averaged and scaled for final grade for the report.

0          not done

1          Poor

2          Fair

3           Good

4          Very Good

5           Exceptional

NB: There is no such thing as a 100% report, so do not ask why you didn’t get “full marks” .  “Good” (3.0) means just that everything done adequately and correctly, and at semester’send that will be scaled to mean approximately B+ to A-.

Similarly, there is no such thing as a correct answer. If we surveyed 10 professional analysts for their forecast price on your stock, none of them would be the same as yours, they would all be different from each other, and they would all be wrong if we looked at their forecasts a year from now. What matters to us is that you do a good job of researching your stock, understanding that firm, and backing up your views with evidence in your research and calculations. We might disagree with your outlook (just as those 10 analysts might),but we will not grade you down just because of that.