The following regressions were run across five 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 fourth set of regressions were run across just Japanese companies. The final set is across all companies globally,
1. United States
2. Europe
3. Emerging Markets
4. Japan
5. Global
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 Disney in January 2014 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 14.7% (if you do not have analyst estimates,
substitute your own).
ROE =The return on equity last
year was 13.6%
Beta =1.25
Using the PBV regression:
PBV for Disney=1.81 + 9.30
gEPS - 0.82 Beta + 7.0 ROE
= 1.81 + 9.30 (.147)+ 7.0(.136) -0.77(1.25) = 3.17
The PEG regression uses the natural log of the expected growth rate. Thus, if your expected growth rate is 15%, you will use ln(.15) = -1.8971
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 2014
T
statistics in brackets below coefficients
|
Regression |
R2 |
|
PE = 4.20 +
149.0
gEPS + 13.40 Payout - 2.86 Beta
(3.35) (26.82) (18.50)
(2.93)
|
33.6%
|
|
PEG = 0.20 Payout
–0.983 ln(gEPS)
(8.17)
(19.77)
|
21.4%
|
|
PBV= 1.81 + 9.30
gEPS
- 0.82 Beta + 7.0 ROE
(15.93) (19.59) (10.05)
(25.67)
|
36.1%
|
|
PS= 0.31+0.04 Payout + 9.17 gEPS
- 0.47 Beta + 12.60 Net Margin
(2.88) (4.70) (19.58) (4.54) (37.00) |
46.2%
|
|
EV/Invested Capital= 2.25 + 2.53 g + 6.36 ROIC –1.83 DFR
(28.35) (10.78) (35.60)
(14.11)
|
63.0%
|
|
EV/Sales = 0.78 + 5.24 g+ 7.12 Operating Margin + 5.39 DFR- 0.67 Tax rate (5.18) (11.87) (17.69) (24.77) (2.05) |
24.1%
|
|
EV/EBITDA= 25.31 + 41.45 g - 20.32 DFR
- 28.03 Tax Rate
(27.01) (14.04) (10.00) (11.47) |
16.5%
|
|
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 DFR = Total Debt/(Total Debt + Market value of equity)( RIR = Reinvestment Rate = (Cap Ex
– Depreciation + Chg in WC)/ EBIT (1-t) |
|
Market-wide Regressions of Multiples – European
companies in January 2014
T
statistics in brackets below coefficients
Regression
|
R2
|
PE = 11.51 +
41.73 gEPS + 14.36 Payout - 1.75 Beta
(14.02 (13.61) (21.38) (3.96)
|
37.7%
|
PEG = -0.27 Beta–1.282 ln(gEPS)
(7.18) (47.37)
|
43.2%
|
PBV= 2.08 + 21.79
gEPS - 0.49 Beta + 7.93 ROE
(17.14) (6.55) (8.78) (25.04)
|
41.8%
|
PS= 1.35 + 3.60 gEPS - 0.28 Beta + 8.79 Net Margin
(14.75) (13.10) (6.18) (28.89) |
45.2%
|
EV/Invested Capital= 1.24 + 2.35 g + 8.74 ROIC –0.55 DFR
(16.39) (8.13) (46.07) (5.79)
|
70.4%
|
EV/Sales = 0.22 + 7.54 g+ 9.99 Operating Margin + 4.66 DFR- 1.76 Tax rate (1.61) (13.35) (23.03) (23.67) (5.81) |
29.6%
|
EV/EBITDA= 15.91 + 29.33 g - 7.53 DFR
- 7.53 Tax Rate
(42.74) (16.21) (10.30) (11.82) |
21.0%
|
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
DFR = Total Debt/(Total Debt + Market value of equity)( RIR = Reinvestment Rate = (Cap Ex
– Depreciation + Chg in WC)/ EBIT (1-t)
|
|
Market-wide
Regressions of Multiples – Japanese Companies in January 2014
T
statistics in brackets below coefficients
Regression
|
R2
|
PE = 11.01+ 17.30 gEPS + 31.22 Payout (9.29) (3.26) (10.45) |
16.9%
|
PEG =-20.90 Payout
–1.256 ln(gEPS)
(2.73) (27.44)
|
48.9%
|
PBV= 1.38 + 1.62
gEPS -0.45 Beta + 6.35 ROE
(10.7) (5.00) (5.31) (12.57)
|
22.7%
|
PS= 0.37+0.36 Payout + 1.45 gEPS - 2.06 Beta + 13.00 Net Margin
(2.44) (1.92) (3.32) (2.14) (19.89) |
41.8%
|
EV/Invested Capital= 1.25 + 0.94 g + 4.36 ROIC –0.67 DFR
(17.5) (2.34) (22.38) (6.62)
|
45.6%
|
EV/Sales = 1.11 - 7.64 g+ 9.43 Operating Margin +3.84 DFR- 2.62 Tax rate (4.89) (17.43) (14.25) (15.17) (5.72) Yes. Growth has a negative coefficient. |
25.5%
|
EV/EBITDA= 10.14 + 45.06 g - 14.53 DFR
- 18.40 Tax Rate
(10.03) (9.22) (13.00) (8.54) |
21.4%
|
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
DFR = Total Debt/(Total Debt + Market value of equity)( RIR = Reinvestment Rate = (Cap Ex
– Depreciation + Chg in WC)/ EBIT (1-t)
|
|
Market-wide
Regressions of Multiples – Emerging Market companies in January 2014
T
statistics in brackets below coefficients
Regression
|
R2
|
PE = 8.52 +
56.2 gEPS + 10.04 Payout - 1.43 Beta
(8.89) (22.78) (9.65) (2.98)
|
20.0%
|
PEG = 0.07 + 0.45 Payout
–0.832 ln(gEPS)
(0.82) (5.67) (27.17) (8.84) |
31.2%
|
PBV= 0.88 + 4.11
gEPS - 0.66 Beta + 0.49 Payout + 8.36 ROE
(7.64) (17.26) (13.57) (4.91) (28.15) |
38.6%
|
PS= 1.21+0.38 Payout + 4.00 gEPS - 0.66 Beta + 8.21 Net Margin
(11.33) (3.73) (15.77) (13.76) (41.90) |
47.2%
|
EV/Invested Capital= 1.97 + 2.67 g + 3.91 ROIC –2.34 DFR
(31.72) (15.33) (21.49) (24.16)
|
44.9%
|
EV/Sales = 1.96 + 5.62 g+ 4.00 Operating Margin + 1.52 DFR- 2.51 Tax rate (17.61) (16.30) (13.50)
(9.71)
|
11.0%
|
EV/EBITDA= 17.99 + 52.73 g - 5.78 DFR
- 34.12 Tax Rate
(29.69) (27.99) (5.79) (16.95) |
24.6%
|
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
DFR = Total Debt/(Total Debt + Market value of equity)( RIR = Reinvestment Rate = (Cap Ex
– Depreciation + Chg in WC)/ EBIT (1-t)
|
|
Market-wide
Regressions of Multiples –Global companies in January 2014
T
statistics in brackets below coefficients
Regression
|
R2
|
PE = 11.79 +
50.39 gEPS + 15.86 Payout - 1.01 Beta
(13.08) (29.38) (38.33) (3.73) (3.90) |
30.1%
|
PEG = 0.49 Payout
–1.19 ln(gEPS)
(10.19) (58.41) (5.24) (9.91) |
33.3%
|
PBV= 1.14 + 3.62
gEPS - 0.55 Beta + 0.52 Payout + 11.19 ROE
(10.11) (18.38) (17.08) (10.83) (56.42) (3.64) |
47.6%
|
PS= 1.06+0.44 Payout + 3.84 gEPS - 0.41 Beta + 9.85 Net Margin
(11.19) (10.49) (21.10) (15.12) (67.85) (2.48) |
51.4%
|
EV/Invested Capital= 2.12 + 1.84 g + 6.92 ROIC –1.18 DFR - 7.78 ERP
(34.05) (15.83) (75.72) (22.35)
|
60.5%
|
EV/Sales = 2.05+ 4.85 g+ 6.68 Op. Margin + 3.87 DFR- 2.04 Tax rate-14.7 ERP (17.19) (20.82) (33.48) (38.20)
|
17.7%
|
EV/EBITDA= 18.96 + 51.12 g - 4.54 DFR
- 11.52 Tax Rate
(30.25) (46.04) (7.81) (12.89) (7.70) |
20.1%
|
ERP = Total Equity Risk Premium for country in which company is incorporated 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
DFR = Total Debt/(Total Debt + Market value of equity)( RIR = Reinvestment Rate = (Cap Ex
– Depreciation + Chg in WC)/ EBIT (1-t)
|
|