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. If a regression yielded a large negative constant, I reran the regression without the constant to reduce the problem of negative predicted values for the multiples.
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 2022 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 12% (if you do not have analyst estimates,
substitute your own).
Payout ratio = 20%
ROE =The return on equity last
year was 16.2%
Beta =1.10
Using the PBV regression:
PBV for Disney=2.32 + 4.60 gEPS - 1.33 Beta + 8.90 ROE
= 2.32 + 4.60 (.12) -1.33 (1.10) + 8.90 (.162) + 0.80 (.20)= 3.01
At its actual price to book ratio of 3.90, Disney is close to correctly valued.
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
Market-wide Regressions of Multiples: US Companies in January 2023
T
statistics in brackets below coefficients
|
Regression |
R Squared |
PE = 8.63 + 2.23 Beta + 46.20 gEPS + 19.30 Payout
(5.13) (1.83) (10.42) (13.71)
|
25.0% |
|
PEG = 6.71 + 1.20 Payout – 1.57 ln(gEPS) -0.77 Beta (27.75) (7.71) (19.04) (5.72) |
56.6%
|
|
PBV= 2.32 + 4.60 gEPS - 1.33 Beta + 8.90 ROE
(8.18) (6.62) (6.40) (18.49)
|
36.9%
|
|
EV/Invested Capital= 3.53 + 1.30 g + 7.30 ROIC – 4.20 DFR
(23.12) (3.42) (20.07) (15.38)
|
56.7%
|
|
EV/Sales = 2.32 + 2.60 g + 10.60 Oper Margin -1.40 DFR- 3.50 Tax rate (10.66) (5.49) (21.61) (4.27) (5.42) |
30.6%
|
EV/EBITDA= 23.93 + 25.40 g - 8.20 DFR - 34.40Tax Rate (22.07) (6.44) (3.43) (7.73) |
5.3%
|
|
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 2023
T
statistics in brackets below coefficients
Regression |
R Squared |
PE = 1.59 + 2.33 Beta + 41.50 gEPS + 27.00 Payout
(1.09) (2.66) (10.70) (20.99)
|
36.6% |
PEG = 4.50 + 0.50 Payout – 1.19 ln(gEPS) + . 0.176 Beta (21.17) (3.11) (16.61) (2.21) |
30.1%
|
PBV= -0.04 + 4.10 gEPS + 0.07 Beta + 9.60 ROE
(0.12) (6.62) (0.46) (17.57)
|
28.5%
|
EV/Invested Capital= 3.10 + 1.90 g + 6.00 ROIC – 3.20 DFR
(21.38) (5.84) (14.06) (16.79)
|
55.9%
|
EV/Sales = 2.20 + 2.60 g + 5.10 Oper Margin + 3.90 DFR- 4.90 Tax rate (8.92) (5.47) (7.65) (12.64) (7.04) |
15.9%
|
EV/EBITDA= 19.78 + 8.00 g - 9.90 DFR - 13.60 Tax Rate (39.45) (6.69) (11.02) (7.88) |
8.8%
|
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 2023
T
statistics in brackets below coefficients
Regression |
R Squared |
PE = 0.17 + 1.38 Beta + 123.20 gEPS + 28.10 Payout
(0.06) (0.98) (19.05) (7.51
|
55.4% |
PEG = 4.30 + 1.40 Payout – 1.24 ln(gEPS) + 1.90 Beta (13.01) (3.60) (10.34) (1.38) |
25.9%
|
PBV= -0.10 +7.30 gEPS + 0.18 Beta + 12.40 ROE
(0.35) (12.01) (1.36) (10.71)
|
34.4%
|
EV/Invested Capital= 2.14 + 3.30 g + 7.80 ROIC – 2.80 DFR
(10.87) (6.79) (8.60) (8.80)
|
53.6%
|
EV/Sales = 1.21 + 4.00 g + 9.30 Oper Margin -1.00 DFR- 2.90 Tax rate (5.53) (8.82) (13.82) (0.48) (4.09) |
44.7%
|
EV/EBITDA= 19.94 + 1.40 g - 0.60 DFR - 23.00Tax Rate (27.44) (0.53) (0.68) (10.81) |
3.50%
|
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)
WACC = Cost of capital in US dollars |
|
Market-wide Regressions of Multiples – Emerging Market companies in January 2023
T
statistics in brackets below coefficients
Regression |
R Squared |
PE = 10.88 + 1.76 Beta + 43.90 gEPS + 6.90 Payout
(8.40) (2.74) (17.34) (4.44)
|
17.6% |
PEG = 3.40 + 0.60 Payout – 0.55 ln(gEPS) - 0.268 Beta (27.88) (4.83) (13.25) (5.80) |
21.5%
|
PBV= 0.87 +3.10 gEPS + 0.23 Beta + 6.00 ROE
(5.32) (11.97) (3.24) (20.30)
|
28.0%
|
EV/Invested Capital= 2.80 + 1.20 g + 4.00 ROIC – 2.90 DFR
(32.42) (8.16) (16.27) (22.72)
|
58.4%
|
EV/Sales = 3.22 + 1.60 g + 4.40 Oper Margin + 1.50 DFR- 2.80 Tax rate (16.86) (5.35) (8.80) (5.36) (4.65) |
5.6%
|
EV/EBITDA= 30.93 + 4.90 g - 17.30 DFR - 40.40 Tax Rate (47.60) (6.08) (15.48) (18.08) |
11.9%
|
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)
WACC = Cost of capital in US dollars |
|
Market-wide Regressions of Multiples –Global companies in January 2023
T
statistics in brackets below coefficients
Regression |
R Squared |
PE = 8.17 + 0.98 Beta + 50.80 gEPS + 18.20 Payout
(11.01) (2.18) (28.07) (23.84)
|
23.6% |
PEG = 4.99 + 1.00 Payout – 1.16 ln(gEPS) - 0.262 Beta (50.22) (12.95) (33.53) (6.08) |
36.6%
|
PBV= 1.09 +3.60 gEPS - 0.16 Beta + 7.50 ROE
(9.46) (15.64) (2.67) (34.75)
|
28.1%
|
EV/Invested Capital= 3.01 + 1.40 g + 6.40 ROIC – 3.20 DFR
(44.69) (10.13) (34.69) (31.07)
|
56.1%
|
EV/Sales = 2.68 + 2.50 g + 8.10 Oper Margin + 2.10 DFR- 5.10 Tax rate (23.97) (11.49) (28.98) (13.26) (15.15) |
17.8%
|
EV/EBITDA= 25.62 + 9.20 g - 11.40 DFR - 32.70Tax Rate (66.53) (12.09) (15.23) (22.54) |
7.5%
|
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)
WACC = Cost of capital in US dollars |
|