Question 4 Multiples Model Jenny just started her intern at

Question 4. Multiples Model Jenny just started her intern at a local investment management firm. Her first task is to use the multiples model to estimate the target price of a subject company - ELA Corp. She selected several comps. The following table presents the financial data for the universe of comparable companies Jenny looked into equity research reports, and recorded that the consensus estimate of ELA Corp\'s EPS is $2 for 2018 Estimate the Target Price Range for 2018, using both the trailing and forward multiples, and both the mean and median metrics EPS P/E Mkt Cap Name Price #shares (mm) TTM 2018E TTM 2018E COMP1 234 COMP2 93 COMP3 183 COMP4 115 COMP570 COMP6 435 COMP7580 141 248 89 258 47 1241 223 841 584 413 749 278 2920 1032 23.421.3 7.8 22.9 20.3 12 13 7.2 23 21.219.3 7.3 290 232 4 28.7 3.33.6 65 2.5 60 6.7 Mean Median

Solution

To calculate the target price, we multiply our EPS with the mean / median multiples of the comparables. Please see calculations below, since we don\'t have trailing EPS of ELA Corp, it is a fair assumption that the growth in EPS is 0%, or forward EPS is the same as trailing:

Name	Price	#shares	Mkt cap	EPS TTM	EPS 2018E	P/E TTM	P/E 2018E
COMP1	234	141	841	10	11	23.4	21.3
COMP2	93	248	584	12	13	7.8	7.2
COMP3	183	89	413	8	9	22.9	20.3
COMP4	115	258	749	5	4	23	28.7
COMP5	70	47	278	3.3	3.6	21.2	19.3
COMP6	435	1241	2920	60	65	7.3	6.7
COMP7	580	223	1032	2	2.5	290	232
Mean						56.51	47.93
Median						22.90	20.30
EPS ELA Corp 2018E	2
Mean forward multiple	47.93
Target price	95.86
Median forward multiple	20.30
Target price	40.60
Assuming same EPS for Trailing twelve months (TTM)
EPS ELA Corp TTM	2
Mean trailing multiple	56.51
Target price	113.03
Median trailing multiple	22.90
Target price	45.80