STOCK REPORT Instructions

Select a company that is listed on a major stock exchange and that pays dividends and use the
concepts and tools discussed in chapters 12(Macroeconomic and Industry Analysis) and 13(Equity
Valuation) to value the common stock of the company. (The Textbook is Essentials of Investments, Bodie
2022) if you can find it online.

Each paper will be typed, double-spaced, 12-point type. The text must be ten pages or less.
Additional tables, charts, and data are encouraged and should be placed in appendices at the end
of the report. The five sections in the report will be as follows: 1) Introduction; 2) Economic
Analysis; 3) Industry Analysis; 4) Firm Analysis; and 5) Conclusion.

You are to estimate the intrinsic value of your company, to compare against the market price,
and to make a buy, hold, or sell recommendation.

The second section of your paper (after the introduction) must consider the macroeconomic
environment during the next year. This section should be about one/two pages long. Consider
the information in the current articles you are reading in financial newspapers and give some
thought to the consensus change predicted for the GDP for the next year. Specify any aspects of
fiscal and monetary policy, current or projected, which will impact the future growth of the GDP.
In particular, look at the business cycle and the Index of Leading Indicators (and any other
relevant indicators) to forecast the overall economic activity during the next year and its
relationship with stock market trends. Refer to Chapter 12(Macroeconomic and Industry Analysis) for
this section of the paper.

The third section of your paper must consider the primary industry of your company and its
outlook for next year. This section should be about two/three pages long. Identify the type of
industry in which your company operates, whether it is cyclical, defensive, etc. Describe the
stage of the industry life cycle in which you consider your industry to be and give some details
you see in your industry which correspond to the items presented in your book on that phase.
Discuss the trends of a few important financial ratios for the industry. Discuss the competitive
forces in the industry and the industry’s future outlook. Refer to Chapter 12 (Macroeconomic and
Industry Analysis) for this section of the
paper.
The fourth section of the paper concerns the stock valuation of your company. This section
should be about three/five pages long. Your company must pay dividends. You will forecast
dividend payments and apply the following dividend discount models: constant growth and two-
stage/multi-stage growth. You will also forecast free cash flow (from forecasted financial
statements) and apply the following free cash flow models: constant growth and two-stage/multi-
stage growth. I recommend using free cash flow to equity models but you may also use free cash
flow to assets. When computing the discount rate (or market capitalization rate) using the
CAPM, assume a market risk premium of 6% (and obtain the risk free rate and beta from
external sources, such as finance.yahoo).

In addition to using dividend discount and free cash flow models, you must also decide what the
expected price of your stock will be at the end of the year by first estimating the firm’s earnings
per share; and by second estimating the firm’s P/E ratio (earnings multiplier) with the
microanalysis approach. Refer to Chapter 13 for this section of the report.

The report should be concise where additional data, charts, analysis and assumptions are
encouraged and should be referenced and placed in the appendices at the end of the report. Label
and reference clearly. Supporting calculations for the valuation should be done in a separate Excel
file that will be submitted as part of the report. State ALL assumptions and clearly define them.
Present a listing of reference resources used in the preparation of the report (for references, follow
any style you like, but be consistent throughout).