Comments on Dividend Growth Model:
EMBA in Finance
 
Growth Rate Calculations: 

Double Counting Growth via the Dupont Model: The "fundamental estimate of growth" in the Damodaran DDM spreadsheet(s) is a variation of the Dupont model.  As such, if you used the Dupont method in your "Outside Prediction of Growth", then you are essentially double counting the growth vis-a-vis the Dupont method.

Has Management Estimated a Growth Rate?:There is no explanation as to why management's expectation of growth isn't included in the weighted average growth estimate. Question: In the section of the 10K/annual report entitled "Management's Discussion with the Shareholders", does management mention a growth range?

Inclusion of a Dupont Model: Please include the detailed Dupont model for the stock of each of your group members.

Recheck Growth Estimates using Dupont Model. Growth estimates using the dupont model appear to be "high".  This is not necessarily unusual... if, for example, your fundamentals include a high leverage. One quick check is to compute the expected growth using analysts EPS estimates contained in your embaval.xls spreadsheet for 1998 and 1999.  By calculating this growth rate i.e., 1999EPS/1998EPS, the following growth rates obtain:

To see the resulting impact of the growth rate on value, please use the preceding growth rates for your supernormal period (if applicable) and see whether your buy/sell/hold decision changes. The difference in the growth rates using the DuPont model is that some students used expected numbers while other students used historical numbers.

Growth Rate for Normal Growth Period Appears to be High: Some of you used a 10% growth rate for the normal growth period.  Analysts expectations for the sp500 long term are at most 7.1% (upper bound).  Please recalculate your values using 7.1%.  Also, choose a lower number, say 3.5%.  How does your value change?

Forecasting your firm's long run growth rate: In forecasting your firm's long run growth rate, recall that in the long run, most firms will grow at a similar rate to the economy as a whole.  One proxy we can use is analysts' estimates of the SP500 which is 7.1% from Bloomberg.  Another way to estimate this normal growth rate according to your Copeland book is "the expected long-term rate of consumption growth for the industry's products + inflation.  We also suggest that sensitivities be analyzed to understand how the growth rate affects value estimates."  Aswath Damodaran's website, the applicable portion which follows, provides you with both the fundamental growth rate (dupont method) and the historical growth rate by industry.  Note that your firms are in the food processing industry.
 

    Growth Rate Estimation ala Aswath Damodaran (please visit his website)

           
 

Growth Rate in Supernormal Growth Period is Lower than in the Normal Growth Period using Two Stage DDM: I don't know whether Aswath's spreadsheet gives you a warning if the weighted average growth rate calculated in the supernormal period is less than the growth rate associated with the normal growth period.  Intuitively however, growthsupernormal > growthnormal.

Other Mistakes:

Justified Values are Negative: If you have a negative justified value per share, this indicates that your growth rate is higher than your cost of equity.  As such, you shouldn't use the constant growth model.  Please redo your calculations using either a two stage or three stage growth model.

Wrong Denominator and/or Wrong Model Used: In the constant growth DDM, the denominator = cost of equity (ke) - growthnormal.  If the denominator is negative, use either the two stage or three stage dividend discount model.