Stock: Tiffany & Co.

Recommendation: BUY
Team #10:
Owen Gilmore
Jerry Jiang
Ziv Israel

November 5-7, 2014

presented by

RECOMMENDATION: BUY
Current Price: $98.00
Target Price: $126.40
Est. Timing: 2+ years
Upside: 29%
IRR: 11.6%

EBITDA Multiple Method

Weighted average cost of capital:
Net present value of free cash flow

8.0%
$1,651

Terminal multiple
Terminal value
Present value of the terminal value

10.7x
$18,234
15,258

Implied perpetuity growth

3.5%

Enterprise value
Plus: Net cash
Equity value

$16,909
($658)
$16,251
Diluted shares:

128.6

Equity Value Per Share

$126.37

Price Target
Implied upside

$126.40
29.0%

| Page 1
Jack Ferraro, MBA
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presented by

Tiffany & Co.

Founded by Charles Lewis Tiffany in 1837,
incorporated in 1868, and went public in 1987
Multinational luxury jewelry retailer that sells jewelry,
sterling silver, watches and other luxury items
Well-known for their brand and diamond jewelry
Items sold in high-quality, luxury mall and street
locations
Sales also generated through the internet and catalogs
Tiffany publishes the Blue Book to showcase their
high-end jewelry
| Page 2
Jack Ferraro, MBA
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presented by

Tiffany & Co.

Geographic sales:
Americas contribute less than 50% of Tiffanys sales
and continue to trend down
Greater China currently represents roughly half the
sales in the Asia-Pacific region
Limited exposure to Europe and Emerging Markets
Geographic
Revenues
Americas
Asia-Pacific
Japan
Europe
Other
Total Revenues

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

FY 2014

55.7%
12.7%
18.7%
9.6%
3.2%
100.0%

52.1%
15.7%
18.9%
11.3%
2.0%
100.0%

51.0%
17.8%
17.7%
11.7%
1.8%
100.0%

49.6%
20.5%
16.9%
11.6%
1.4%
100.0%

48.5%
21.4%
16.8%
11.4%
1.9%
100.0%

47.8%
23.4%
14.4%
11.7%
2.8%
100.0%

| Page 3

Source: Capital IQ

Jack Ferraro, MBA

70

presented by

CURRENT CAPITALIZATION / TRADING STATS

| Page 4

Source: Yahoo Finance

Jack Ferraro, MBA

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presented by

HISTORICAL STOCK CHART

| Page 5

Source: Yahoo Finance

Jack Ferraro, MBA

70

presented by

INVESTMENT THESIS
C
O
T
I
N
U
E
D
O
R
G
A
N
I
C
G
R
O
W
T
H

1) Strong Revenue Growth from Asia

Consumers
2) Continued Improvement in Gross
Margins
3) Remain a Leader in Product Innovation

| Page 6
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THESIS #1 Growth from Asian Consumers

289 stores worldwide
as of the end of FY13
Plans to open 13 new
stores in FY14, with five
already completed
Tiffanys adding five stores in the Asia-Pacific region,
representing a 7% increase in store locations
H1 sales jumped in Asia-Pacific, up 15% (~$66M)
Due to increases in number of jewelry units sold and an
increase in the average price per jewelry unit
| Page 7

Source: Yahoo Finance; Company financials

Jack Ferraro, MBA

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presented by

THESIS #1 Growth from Asian Consumers

We see stratospheric savings rates, extreme price
sensitivity and aversion to credit-card interest
payments On the other, there is the Chinese fixation
with luxury goods and a willingness to pay as much as
120% of one's yearly income for a car.
A Diamond is Forever, glorifies eternal romance. In
China obligation, a familial covenantrock solid, like
the stone itself.
Tiffanys is already well entrenched in the region
| Page 8

1 Wall Street Journal

Jack Ferraro, MBA

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presented by

THESIS #1 Growth from Asian Consumers

Industry forecasting slowing revenue growth in China
(and across rest of Asia-Pacific)
However, has had stronger growth in the Asia-Pacific
region than other US and China jewelry manufacturers
While revenue growth should
slow, expect Tiffanys will
continue to experience better
growth than peers

| Page 9

Source: IBIS World

Jack Ferraro, MBA

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presented by

THESIS #2 Improved Gross Margins

Tiffanys brand and products command high
gross margins historically in high 50s
Healthy trends in recent years
Gross margins improved from 57% to 59.1% for 12m
ended 1/31/13 and 12m ended 7/31/14, respectfully
Company sparing closes stores that generate low
revenue and replaces with better ones which reduce
costs and improve margins
| Page 10
Jack Ferraro, MBA
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presented by

THESIS #2 Improved Gross Margins

Tiffanys able to expand gross margins with a variety of
factors
Has consistently been able to increase prices across all
geographic regions without significantly volume drops

| Page 11

Source: Oppenheimer Equity Research

Jack Ferraro, MBA

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presented by

THESIS #2 Improved Gross Margins

Recent declines in gold will reduce product costs
Tiffany to reap benefits if declines in gold (and other
precious metals) persists

| Page 12

Source: goldprice.org

Jack Ferraro, MBA

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presented by

THESIS #3 Product Innovation

Leadership in product innovation has continued
Atlas Collection was relaunched
in fall 2013
First debuted in 1995 and inspired
by the Greek god, Atlas
Tiffany T Collection launched in fall 2014
Designed by Francesca Amfitheatrof, Tiffanys newly
hired design director
Strong, graphic form of the Tiffany T
| Page 13

Source: tiffany.com

Jack Ferraro, MBA

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presented by

THESIS #3 Product Innovation

Tiffany T Collection
50+ styles
Range of metals (yellow, white, rose gold)
Diamonds accents included in some items
Price ranges from a few hundred dollars up to $20,000
Key design director hire and ability to successfully
launch new (and relaunch old) product lines shows
Tiffanys commitment to continuing their leadership in
product innovation
| Page 14

1 Oppenheimer Equity Research

Jack Ferraro, MBA

70

presented by

VALUATION
Tiffanys slightly expensive based on its historical
TEV/LTM EBITDA multiple
Currently 12.4x vs average of 10.6x

| Page 15

Source: Yahoo Finance

Jack Ferraro, MBA

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presented by

COMPS (Luxury Retailers)

TIF P/E ratios near midpoint of company comparables
P/E range 11.6x 32.8x
Name

MktCap
(M US$)

Price
(loc)

TIFFANY & CO
SIGNET JEWELERS
SWATCH GROUP-BR
DOMINION DIAMOND
RALPH LAUREN COR
COACH INC
BURBERRY GROUP
HERMES INTL
LVMH MOET HENNES
KERING
PRADA S.P.A.
CHRISTIAN DIOR
MICHAEL KORS HOL

12,575
9,669
24,953
1,159
14,825
9,152
10,717
32,707
85,681
24,779
15,727
32,189
14,944

97.30
120.50
448.80
15.59
169.04
33.26
1,517.00
249.00
135.65
157.85
47.65
142.05
72.70

YTD
(%)
4.8
53.2
(23.7)
2.2
(4.3)
(40.8)
0.1
(5.4)
2.4
2.8
(30.9)
3.7
(10.4)

PE FY0
22.7x
24.2x
13.5x
32.8x
19.9x
11.6x
20.6x
31.6x
20.2x
23.6x
22.5x
17.9x
19.1x

PE FY1
22.4x
21.9x
15.5x
15.3x
19.8x
17.7x
19.6x
30.1x
19.8x
16.6x
23.0x
16.9x
17.5x

PE FY2
19.6x
18.2x
13.9x
20.2x
17.2x
16.3x
18.0x
26.7x
17.6x
14.3x
20.3x
13.7x
15.1x

PB FY0
4.3x
3.6x
2.5x
0.9x
3.7x
3.8x
5.8x
8.9x
2.5x
1.9x
4.7x
2.2x
6.7x

PB FY1
4.1x
3.4x
2.3x
0.8x
3.6x
3.6x
4.8x
7.7x
2.4x
1.8x
4.2x
2.3x
5.6x

PB FY2
3.6x
2.9x
2.0x
0.8x
3.3x
3.3x
4.2x
6.4x
2.2x
1.6x
3.7x
2.0x
4.1x

14ROE
(%)

15ROE
(%)

18.1
14.8
15.5
5.0
18.3
19.7
26.6
27.8
12.5
10.3
19.1
14.2
36.8

20.0
16.3
15.3
3.5
19.6
21.8
25.0
25.8
13.5
11.8
19.1
12.3
30.6

Net Debt/ EV/EBITDA EV/EBITDA EV/EBITDA

ROIC T12M
Eq.
T12M
FY1
FY2
23.3
(8.9)
(12.3)
(15.0)
(24.4)
(30.1)
(33.3)
(35.1)
20.3
30.8
(11.0)
26.9
(52.9)

22.2
16.7
8.9
3.9
10.4
7.2
10.5
18.1
10.2
12.0
11.7
6.8
11.8

11.7
13.4
10.0
3.0
10.2
8.7
10.8
17.3
10.5
12.0
12.0
7.0
9.9

10.5
11.5
9.0
3.6
9.2
8.0
9.9
15.3
9.5
10.6
10.7
6.6
8.5

18.9
(0.0)
15.6
30.4
31.7
10.5
7.3
20.2
9.6

| Page 16
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presented by

DISCOUNTED CASH FLOW

Discounted Cash Flow Analysis for Tiffany & Company
Dollars in millions, except for shares
Period Ending Jan 13,
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Revenues
EBITDA
Less: D&A
EBIT

$2,849
628
(136)
$492

$2,710
579
(139)
$440

$3,085
759
(148)
$611

$3,643
897
(146)
$751

$3,794
861
(164)
$697

$4,031
975
(181)
$794

2015e

2016e

2017e

$4,481
1,190
(203)
$987

$4,964
1,440
(215)
$1,225

$5,460
1,702
(228)
$1,474

Operating Margin

17.3%

16.2%

19.8%

20.6%

18.4%

19.7%

22.0%

24.7%

27.0%

Less: Taxes
Tax-effected EBIT

$134
$359

$124
$316

$179
$432

$226
$525

$227
$470

$73
$720

$345
$642

$429
$796

$516
$958

Plus: Depreciation and Amortization

Less: Net Capital Expenditures
(Increase)/decrease in working capital
Free Cash Flow to the Firm (FCFF)
Earnings per share (diluted)

$136
154

$139
75
(276)
$656
$2.14

$148
127
269
$184
$2.91

$146
239
439
($7)
$3.45

$164
220
251
$163
$3.28

$181
222
184
$496
$1.42

$203
242
100
$502
$4.65

$215
265
100
$646
$5.85

$228
290
100
$796
$7.11

$340

| Page 17
Jack Ferraro, MBA
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presented by

DISCOUNTED CASH FLOW

Perpetuity Growth Method

EBITDA Multiple Method

Weighted average cost of capital:

Net present value of free cash flow

8.0%
$1,651

Weighted average cost of capital:

Net present value of free cash flow

8.0%
$1,651

Terminal growth rate

Terminal value
Present value of the terminal value

3.5%
$18,234
$15,258

Terminal multiple
Terminal value
Present value of the terminal value

10.7x
$18,234
15,258

Implied EBITDA multiple

10.7x

Enterprise value
Plus: Net cash*
Equity value

$16,909
($658)
$16,251

Implied perpetuity growth

3.5%

Enterprise value
Plus: Net cash
Equity value

$16,909
($658)
$16,251

Diluted shares:

128.6

Diluted shares:

128.6

Equity Value Per Share

$126.37

Equity Value Per Share

$126.37

$98.00

Price Target
Implied upside

$126.40
29.0%

Current share price:

| Page 18
Jack Ferraro, MBA
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presented by

DISCOUNTED CASH FLOW - Sensitivity Analysis

Perpetuity Growth Method

Weighted Average Cost of Capital

Terminal
Growth
Rate

##

2.50%
3.00%
3.50%
4.00%
4.50%

7.00%
$128.47
$144.19
$164.41
$191.36
$229.10

7.50%
$115.13
$127.63
$143.26
$163.35
$190.14

8.00%
$104.21
$114.37
$126.80
$142.33
$162.30

8.50%
$95.10
$103.52
$113.63
$125.98
$141.42

9.00%
$87.39
$94.48
$102.85
$112.89
$125.17

= Expected Return on Investment is 25%+

| Page 19
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presented by

DISCOUNTED CASH FLOW - Downside

Discounted Cash Flow Analysis for Tiffany & Company
Dollars in millions, except for shares
Period Ending Jan 13,
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Revenues
EBITDA
Less: D&A
EBIT

$2,849
628
(136)
$492

$2,710
579
(139)
$440

$3,085
759
(148)
$611

$3,643
897
(146)
$751

$3,794
861
(164)
$697

$4,031
975
(181)
$794

2015e

2016e

2017e

$4,316
1,091
(203)
$888

$4,627
1,211
(215)
$996

$4,959
1,342
(228)
$1,113

Operating Margin

17.3%

16.2%

19.8%

20.6%

18.4%

19.7%

20.6%

21.5%

22.5%

Less: Taxes
Tax-effected EBIT

$134
$359

$124
$316

$179
$432

$226
$525

$227
$470

$73
$720

$311
$577

$349
$647

$390
$724

Plus: Depreciation and Amortization

Less: Net Capital Expenditures
(Increase)/decrease in working capital
Free Cash Flow to the Firm (FCFF)
Earnings per share (diluted)

$136
154

$139
75
(276)
$656
$2.14

$148
127
269
$184
$2.91

$146
239
439
($7)
$3.45

$164
220
251
$163
$3.28

$181
222
184
$496
$1.42

$203
242
100
$438
$4.15

$215
265
100
$497
$4.69

$228
290
100
$561
$5.28

$340

| Page 20
Jack Ferraro, MBA
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presented by

DISCOUNTED CASH FLOW - Downside

Perpetuity Growth Method

EBITDA Multiple Method

Weighted average cost of capital:

Net present value of free cash flow

8.0%
$1,278

Weighted average cost of capital:

Net present value of free cash flow

8.0%
$1,278

Terminal growth rate

Terminal value
Present value of the terminal value

3.2%
$12,032
$10,069

Terminal multiple
Terminal value
Present value of the terminal value

9.0x
$12,032
10,069

Implied EBITDA multiple

9.0x

Enterprise value
Plus: Net cash*
Equity value

$11,346
($658)
$10,688

Implied perpetuity growth

3.2%

Enterprise value
Plus: Net cash
Equity value

$11,346
($658)
$10,688

Diluted shares:

128.6

Diluted shares:

128.6

Equity Value Per Share

$83.11

Equity Value Per Share

$83.11

Price Target
Implied upside

$83.10
(15.2%)

Current share price:

$98.00

| Page 21
Jack Ferraro, MBA
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presented by

DISCOUNTED CASH FLOW - Sensitivity Analysis

Downside
Perpetuity Growth Method
Weighted Average Cost of Capital

Terminal
Growth
Rate

##

2.20%
2.70%
3.20%
3.70%
4.20%

7.00%
$84.50
$94.17
$106.40
$122.32
$143.94

7.50%
$76.13
$83.93
$93.55
$105.70
$121.53

8.00%
$69.20
$75.62
$83.37
$92.93
$105.01

8.50%
$63.37
$68.73
$75.11
$82.82
$92.32

9.00%
$58.39
$62.94
$68.27
$74.61
$82.28

= Expected Return on Investment is 25%+

| Page 22
Jack Ferraro, MBA
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presented by

INVESTMENT SUMMARY
Tiffany & Co. presents an attractive opportunity
Strong Asia-Pacific revenue growth, driven by
increased units sold and greater revenue per unit, will
become significant top-line contributor
Improving gross margins will lead to improved net
margins and strong free cash flow
Tiffanys leadership in product innovation creates
opportunities for new revenue lines
Tiffany & Co. strong BUY with 29% upside (11.6% IRR)
| Page 23
Jack Ferraro, MBA
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presented by

INVESTMENT RISKS/MITIGANTS
Risk: Continued market volatility and market declines in
North America currently a strong market at 48% of revenues
Mitigant: Diversification outside the US
Risk: Commodities price volatility
Mitigant: Focus on retaining ability to pass through higher input
costs to the consumer
Risk: Strengthening US dollar
Mitigant: Hedging (although can be expensive)
| Page 24
Jack Ferraro, MBA
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presented by

APPENDIX
Tiffany & Co.

| Page 25
Jack Ferraro, MBA
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presented by

MANAGEMENT TEAM
Name/Position

Background
Mr. Michael J. Kowalski has been the Chairman and Chief Executive Officer of Tiffany & Co.
since January 2003 and February 1999 respectively. Mr. Kowalski served as the President of
Tiffany & Co. from January 1996 to January 2003, Executive Vice President from March 1992
to January 1996 and Chief Operating Officer from January 1997 to February 1999. He has
been a Director of Tiffany since January 1995 and The Bank of New York Mellon Corporation
since July 1, 2007. He serves as a Director of Jewelers of America and PSB Group Inc.

Michael Kowalski CEO &

Chairman of the Board

Mr. Frederic Cumenal has been President of Tiffany & Co., since September 24, 2013 and is
responsible for the businesses in Asia, Japan, Europe and Emerging Markets at Tiffany & Co.
Mr. Cumenal served as Executive Vice President of Tiffany & Co. from March 10, 2011 to
September 24, 2013. He served as Chief Executive Officer & President of Champagne Moet &
Chandon SA. He has been Director of Tiffany & Co., since September 24, 2013.
Frederic Cumenal President

Ms. Caroline D. Naggiar serves as Senior Vice President of Tiffany & Co. and has been its
Chief Marketing Officer since 2007. Ms. Naggiar was assigned additional responsibility for the
Public Relations department in 2007 and served as Senior Vice President of Marketing of
Tiffany & Co. since February 1998. She joined Tiffany & Co. as Vice President of Marketing
Communications in June 1997.

| Page 26

Caroline Naggiar CMO

Jack Ferraro, MBA

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presented by

HISTORICAL MULTIPLES
Tiffanys slightly expensive based on its historical
TEV/LTM EBITDA multiple
Currently 12.4x vs average of 10.6x

| Page 27
Jack Ferraro, MBA
70

presented by

INDSUTRY ANALYSIS (FIVE FORCES)

Threat of new Entrants: Low

Bargaining Power of
Suppliers: High

Products use
commodity inputs

Brand highest asset to

Tiffanys
Bargaining Power of
Buyers: Moderate to Low

Rivalry Among Existing Firms:

High

High industry growth rate

Competitors expanding
globally

Superior pricing power

Ability to pass higher
input cost to consumers

Threat of Substitute Products:

High

Consumers concerned
about conflict diamonds
More expensive to acquire
conflict free diamonds

| Page 28
Jack Ferraro, MBA
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presented by

Tiffany & Company

Dollars in millions, except per share data
Income Statement
Americas

12m ended
1/31/2009
FY 2009
$1,586.6

Asia-Pacific

363.1

Japan

533.5

Europe

273.1

Other
Total Revenue
Revenue Growth

92.6
$2,848.9

12m ended
1/31/2010
FY 2010
$1,410.8
(11.1%)
426.3
17.4%
513.0
(3.8%)
306.3
12.2%
53.3
(42.5%)
$2,709.7
(4.9%)

12m ended
1/31/2011
FY 2011
$1,574.6
11.6%
549.2
28.8%
546.5
6.5%
360.8
17.8%
54.2
1.7%
$3,085.3
13.9%

12m ended
1/31/2012
FY 2012
$1,805.8
14.7%
748.2
36.2%
616.5
12.8%
421.1
16.7%
51.3
(5.3%)
$3,642.9
18.1%

12m ended
1/31/2013
FY 2013
$1,840.0
1.9%
810.4
8.3%
639.2
3.7%
432.2
2.6%
72.5
41.4%
$3,794.2
4.2%

12m ended
1/31/2014
FY 2014
$1,926.9
4.7%
944.7
16.6%
578.6
(9.5%)
469.8
8.7%
111.2
53.4%
$4,031.1
6.2%

12m ended
7/31/2014
LTM

$4,214.8
4.6%

2015e
$2,023.21
5.0%
1,228.1
30.0%
590.1
2.0%
516.8
10.0%
122.4
10.0%
$4,480.5
11.1%

2016e
$2,124.37
5.0%
1,535.1
25.0%
601.9
2.0%
568.4
10.0%
134.6
10.0%
$4,964.4
10.8%

2017e
$2,230.59
5.0%
1,842.1
20.0%
614.0
2.0%
625.3
10.0%
148.1
10.0%
$5,460.0
10.0%

Cost Of Goods Sold

Gross Profit
Gross Profit Margin

1,202.4
$1,646.4
57.8%

1,179.5
$1,530.2
56.5%

1,263.0
$1,822.3
59.1%

1,491.6
$2,151.4
59.1%

1,631.0
$2,163.3
57.0%

1,690.7
$2,340.4
58.1%

1,725.0
$2,489.8
59.1%

1,792.2
$2,688.3
60.0%

1,936.1
$3,028.3
61.0%

2,074.8
$3,385.2
62.0%

Selling General & Admin Exp.

Depreciation & Amort.

$1,018.1
135.8

$950.8
139.4

$1,063.0
147.9

$1,254.3
145.9

$1,302.4
163.6

$1,365.9
180.6

$1,413.4
191.5

$1,498.3
203.0

$1,588.2
215.2

$1,683.4
228.1

$1,153.9
40.5%

$1,090.2
40.2%
(5.5%)

$1,210.9
39.2%
11.1%

$1,400.2
38.4%
15.6%

$1,466.1
38.6%
4.7%

$1,546.5
38.4%
5.5%

$1,605.0
38.1%
3.8%

$1,701.3
38.0%
6.0%

$1,803.3
36.3%
6.0%

$1,911.5
35.0%
6.0%

$492.5
17.3%

$440.1
16.2%

$611.4
19.8%

$751.1
20.6%

$697.2
18.4%

$793.9
19.7%

$884.8
21.0%

$987.1
22.0%

$1,225.0
24.7%

$1,473.7
27.0%

($29.0)
0.1
(97.8)
$365.8

($55.0)
4.6
0.4
$390.0

($54.3)
7.0
(16.6)
$547.5

($48.6)
5.1
(42.7)
$664.9

($59.1)
5.5
0
$643.6

($62.7)
5.7
(482.1)
$254.8

($67.7)
5.7
(472.7)
$350.1

($68.0)
0
0
$919.1

($68.0)
0
0
$1,157.0

($68.0)
0
0
$1,405.7

133.6
36.5%
$232.16
8.1%

124.3
31.9%
$265.75
9.8%

179.0
32.7%
$368.46
11.9%

225.8
34.0%
$439.14
12.1%

227.4
35.3%
$416.17
11.0%

73.5
28.8%
$181.31
4.5%

109.4
31.2%
$240.73
5.7%

321.7
35.0%
$597.39
13.3%

404.9
35.0%
$752.03
15.1%

492.0
35.0%
$913.69
16.7%

124.7

124.3
-0.3%
$2.14

126.6
1.8%
$2.91
36.2%

127.4
0.6%
$3.45
18.4%

126.7
-0.5%
$3.28
-4.7%

127.8
0.9%
$1.42
-56.8%

128.6
0.6%
$1.87
32.0%

128.6
0.0%
$4.65
227.5%

128.6
0.0%
$5.85
25.9%

128.6
0.0%
$7.11
21.5%

$4.34
7.0%

$4.95
18.1%

$5.69
24.9%

Other Operating Exp., Total

Other Operating Exp., Total
Other Operating Exp., Total Growth
Operating Income
Operating Income Margin
Interest Expense
Other Non-Operating Expense, net
Other Unusual Expenses
Income Before Taxes (EBT)
Income Tax Expense
Effective Tax Rate
Net Income
Net Income Margin
Diluted Shares
Change in Share Count
Recurring EPS
EPS Growth
Consensus EPS (Capital IQ as of 11/6/14)
My estimates vs. Consensus

Jack Ferraro, MBA

70

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presented by

Discounted Cash Flow Analysis for Tiffany & Company

Dollars in millions, except for shares
Period Ending Jan 13,
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Revenues
EBITDA
Less: D&A
EBIT

$2,849
628
(136)
$492

$2,710
579
(139)
$440

$3,085
759
(148)
$611

$3,643
897
(146)
$751

$3,794
861
(164)
$697

$4,031
975
(181)
$794

2015e

2016e

2017e

$4,481
1,190
(203)
$987

$4,964
1,440
(215)
$1,225

$5,460
1,702
(228)
$1,474

Operating Margin

17.3%

16.2%

19.8%

20.6%

18.4%

19.7%

22.0%

24.7%

27.0%

Less: Taxes
Tax-effected EBIT

$134
$359

$124
$316

$179
$432

$226
$525

$227
$470

$73
$720

$345
$642

$429
$796

$516
$958

Plus: Depreciation and Amortization

Less: Net Capital Expenditures
(Increase)/decrease in working capital
Free Cash Flow to the Firm (FCFF)
Earnings per share (diluted)

$136
154

$139
75
(276)
$656
$2.14

$148
127
269
$184
$2.91

$146
239
439
($7)
$3.45

$164
220
251
$163
$3.28

$181
222
184
$496
$1.42

$203
242
100
$502
$4.65

$215
265
100
$646
$5.85

$228
290
100
$796
$7.11

$340

Perpetuity Growth Method

EBITDA Multiple Method

Weighted average cost of capital:

Net present value of free cash flow

8.0%
$1,651

Weighted average cost of capital:

Net present value of free cash flow

8.0%
$1,651

Terminal growth rate

Terminal value
Present value of the terminal value

3.5%
$18,234
$15,258

Terminal multiple
Terminal value
Present value of the terminal value

10.7x
$18,234
15,258

Implied EBITDA multiple

10.7x

Enterprise value
Plus: Net cash*
Equity value

$16,909
($658)
$16,251

Implied perpetuity growth

3.5%

Enterprise value
Plus: Net cash
Equity value

$16,909
($658)
$16,251

Diluted shares:

128.6

Diluted shares:

128.6

Equity Value Per Share

$126.37

Equity Value Per Share

$126.37

$98.00

Price Target
Implied upside

$126.40
29.0%

Current share price:

Jack Ferraro, MBA

70

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