The following regressions were run across four groupings. The first and most comprehensive set of regressions were run across all traded companies in the United States. The second set of regressions were run across all traded companies in Western Europe and the UK. The third set of regressions were run across companies in emerging markets in Asia, Eastern Europe and Latin America. The final set of regressions were run across just Japanese companies.
1. United States
2. Europe
3. Emerging Markets
4. Japan
Using the regressions should be pretty straightforward,
if you can get the data on the independent variables for your company and
stay true to decimal format. (25% gets entered as 0.25). As an example, assume
that you are looking at Coca Cola in January 2013 and decide to use the US
market regression for price to book ratio. Here are the inputs:
g = The analyst estimate of earnings
growth rate for the next 5 years is 7.4% (if you do not have analyst estimates,
substitute your own).
ROE =The return on equity last
year was 27.50%
Beta =0.70
Payout ratio = Dividend per share/ Earnings per share =
61%
Using the PBV regression:
PBV for Coca Cola =0.18 + 6.44
gEPS +1.17 Payout -0.77 Beta + 11.28 ROE
=
0.18 + 6.44
(0.074) +1.17 (0.61) -0.77 (0.70) + 11.28 (.275) = 3.93
At its actual
price to book ratio of 5.22, Coca Cola is overvalued by about 20%.
Market-wide
Regressions of Multiples: US Companies in January 2013
T
statistics in brackets below coefficients
|
Regression |
R2 |
|
PE = 7.95 +
57.72
gEPS + 11.48 Payout - 3.60 Beta
(10.63) (18.13) (12.69)
(8.04)
|
35.4%
|
|
PEG = -0.51 Beta + 1.05 Payout
–0.74 ln(gEPS)
(15.55) (12.87)
(31.10)
|
57.4%
|
|
PBV= 0.18 + 6.44
gEPS
+1.17 Payout -0.77 Beta + 11.28 ROE
(4.29) (11.70) (6.99) (9.74)
(36.58)
|
60.5%
|
|
PS= 0.70 Payout + 4.11 gEPS
- 0.47 Beta + 12.87 Net Margin
(7.64) (9.02) (8.74) (43.99) |
64.0%
|
|
EV/Invested Capital= 1.34 + 9.58 g + 8.27 ROIC – 8.50 WACC - 0.52 Tax rate
(6.84) (10.68) (29.27)
(3.65)
|
50.0%
|
|
EV/Sales = 2.43 + 8.55 g+ 8.29 Operating Margin –20.27 WACC - 1.87 Tax rate
(13.83) (12.25) (32.30)
(10.53)
|
53.6%
|
|
EV/EBITDA= 13.68 + 69.21 g - 10.07 WACC
- 10.07 Tax Rate
(16.38) (21.18) (7.11) (7.11) |
27.5%
|
|
gEPS = Expected growth rate in EPS for next
5 years (analyst estimates) Payout = Dividends/Earnings ROIC = Return on capital = EBIT (1- tax
rate)/ Invested Capital Operating Margin
= Pre-tax Operating Income/ Sales
Invested Capital = Book value of equity
+ Book value of debt - Cash ROE = Net Income/ Book value of Equity Tax Rate = Effective tax rate WACC = Cost of Capital RIR = Reinvestment Rate = (Cap Ex
– Depreciation + Chg in WC)/ EBIT (1-t) |
|
Market-wide Regressions of Multiples – European
companies in January 2013
T
statistics in brackets below coefficients
|
Regression |
R2 |
|
PE = 11.39 + 50.75 gEPS+ 8.53 Payout
(11.51) (17.76) (6.49) (6.48) |
31.9%
|
|
PBV= 2.13 Payout - 0.57 Beta + 12.33 ROE
(13.22) (11.38) (39.69) (5.29) |
67.5%
|
|
PS= 0.33 + + 14.45 Net Margin - 0.45 Beta + 0.47 Payout + 2.81 gEPS (2.61) (41.45) (9.32) (3.19) (9.52) |
71.0%
|
|
EV/Invested Capital= 1.47 + 0.56 g + 7.37 ROIC - 8.99 WACC (13.69) (4.30) (45.68) (5.45) |
47.7%
|
|
EV/Sales =3.93 - 2.73 Tax rate -33.13 WACC + 7.36 Operating Margin
(24.53) (9.71) (16.51) (22.56) (13.95) |
27.7%
|
|
EV/EBITDA=10.59 -8.39 Tax rate -11.82 WACC + 31.11 g + 2.40 ROIC
(19.70) (9.46) (1.72)
|
20.9%
|
|
gEPS = Expected growth rate in EPS for next
5 years (analyst estimates) Payout = Dividends/Earnings ROIC = Pre-tax Return on capital = EBIT (1-t) / Invested Capital
Operating Margin = EBIT/ Sales IC =Invested Capital = Book value of
equity + Book value of debt - Cash ROE = Net Income/ Book value of Equity Tax Rate = Effective tax rate
D/C =Debt/Capital = Debt/ (Market value
of Equity + Debt) WACC = Cost of Capital in US dollars RIR = Reinvestment Rate = (Cap Ex
– Depreciation + Chg in WC)/ EBIT (1-t) |
|
Market-wide
Regressions of Multiples – Japanese Companies in January 2013
T
statistics in brackets below coefficients
|
Regression |
R2 |
PE = 8.29 + 31.39 gEPS+ 17.98 Payout
(10.94) (13.09) (8.76) |
45.1%
|
PBV= 1.13 - 0.13 Beta + 2.57 ROE
(35.56) (5.89) (24.02) |
16.4%
|
PS= 0.68 + + 6.64 Net Margin (40.20) (40.51) |
33.8%
|
EV/Invested Capital= 0.50 + 0.05 g + 5.21 ROIC (21.38) (2.35) (37.91) |
54.5%
|
EV/Sales =4.03 - 1.77 Tax rate -38.49 WACC + 6.69 Operating Margin
(34.25) (11.25) (26.97) (29.18) |
29.9%
|
EV/EBITDA=23.75 - 16.32 Tax rate -139.93 WACC + 5.97 g (25.18) (13.75) (12.52)
|
45.1%
|
|
gEPS = Expected growth rate in EPS for next
5 years (analyst estimates) Payout = Dividends/Earnings ROIC = Return on capital = EBIT (1- tax
rate)/ Invested Capital Invested Capital = Book value of equity
+ Book value of debt - Cash ROE = Net Income/ Book value of Equity Tax Rate = Effective tax rate D/C = Debt/ (Market value of
Equity + Debt)
WACC = Cost of Capital in US dollars RIR = Reinvestment Rate = (Cap Ex
– Depreciation + Chg in WC)/ EBIT (1-t) |
|
Market-wide
Regressions of Multiples – Emerging Market companies in January 2013
T
statistics in brackets below coefficients
|
Regression |
R2 |
|
PE = 15.22+ 43.52 gEPS - 3.67 Beta + 2.01 Payout (18.10) (21.69) (9.69) (2.12) |
32.9%
|
|
PBV= 0.43- 0.42 Beta + 0.95 Payout + 8.86 ROE
(2.99) (7.58) (6.65) (28.56)
|
47.9%
|
|
PS= 1.13- 0.72 Beta +
0.88 Payout + 9.71 Net Margin
(8.00) (12.36) (5.94)
(40.91)
|
58.6%
|
|
EV/Invested Capital= 1.93 -6.53 WACC + 6.49 ROIC – 1.85 Tax rate + 0.18 g
(20.91) (5.57) (45.60)
|
40.0%
|
|
EV/Sales =6.03 - 2.27 Tax rate -48.37 WACC + 0.43 g + 7.17 Operating Margin
(47.35) (7.35) (31.35)
(4.10)
|
26.7%
|
|
EV/EBITDA= 22.16 - 20.70 Tax rate -67.57 WACC + 4.87 g
(29.07) (14.27) (7.80) (10.68)
|
9.1%
|
|
gEPS = Expected growth rate in EPS for next
5 years (analyst estimates) Payout = Dividends/Earnings ROIC = Return on capital = EBIT (1- tax
rate)/ Invested Capital Invested Capital = Book value of equity
+ Book value of debt - Cash ROE = Net Income/ Book value of Equity Tax Rate = Effective tax rate Debt/Capital = Debt/ (Market value of
Equity + Debt) WACC = Cost of capital in US dollars RIR = Reinvestment Rate = (Cap Ex
– Depreciation + Chg in WC)/ EBIT (1-t) |
|