KMBSolution6 - Kimberly-Clark Corporation (KMB) Solution to...

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Kimberly-Clark Corporation (KMB) Solution to Continuing Case, Chapter 6 CONVERTING ANALYSTS’ FORECASTS TO A VALAUTION The traded P/E Forward P/E = $64.81/$3.81 = 17.0 Trailing P/E = ($64.81 + $1.60)/$3.64 = 18.2 (this was calculated in the Chapter 3 solution) The valuation Following the scheme for the valuation in Chapter 5, there are two valuations below. 1. First we calculate the value based on only two years of analysts’ forecasts and then apply a growth rate of 4% after 2006. We use the 8.9% required return that we calculated in Chapter 3. Required Return 8.9% 2005 2006 Dps 1.80 1.96 Eps 3.81 4.14 Dps reinvested 0.160 Cum-dividend earnings (eps+dps reinvested) 4.300 Normal Earnings 4.149 Abnormal Earnings Growth (AEG) 0.151 AEG Growth Rate (g) 0.04 Continuing value 3.084 PV of continuing value 3.084 Total 6.894 Capitalization rate 0.089 Value per share 77.46 The formula for this calculation is - + = 04 . 1 089 . 1 1511 . 0 81 . 3 089 . 0 1 2004 E V = $77.46
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The intrinsic forward P/E = $77.46/$3.81 = 20.3 2. Now incorporate analysts’ 5-year growth forecasts into the valuation. Eps below are growing at 8% after 2006 and dps forecasts are those we used in the Chapter 5 Case. Required Return 8.9% 2005 2006 2007 2008 2009 Dps 1.80 1.96 2.14 2.33 2.54 Eps 3.81 4.14 4.47 4.83 5.22 Dps reinvested 0.160 0.174 0.190 0.209 Cum-dividend earnings (eps+dps reinvested) 4.300 4.644 5.020 5.427 Normal Earnings 4.149 4.508 4.868 5.260 Abnormal Earnings Growth (AEG) 0.151 0.136 0.152 0.167 Discount factor 1.0890 1.186 1.291 1.406 PV of AEG 0.139 0.115 0.118 0.119 Total PV of AEG 0.491 AEG Growth Rate (g) 0.04 Continuing value 3.544 PV of continuing value 2.521 Total 6.822 Capitalization rate 0.089 Value per share 76.65 The continuing value (CV) = 04 . 1
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KMBSolution6 - Kimberly-Clark Corporation (KMB) Solution to...

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