This paper should be no longer than 12 pages double spaced!!

Stock Analysis Project (PLEASE FOLLOW THE OUTLINE BELOW)

NOTE:  THIS ASSIGNMENT MUST BE PRESENTED BEFORE THE FINAL EXAM.  FAILURE TO DO SO WILL RECEIVE AN AUTOMATIC 10% GRADE REDUCTION.  THIS GRADE REDUCTION WILL HAVE A SUBSTANTIAL IMPACT ON YOUR GRADE AS THIS ASSIGMENT COUNTS FOR 30% OF YOUR TOTAL GRADE SCORE.  

Using the skills you learn in the course, analyze a stock of your choosing and make a buy/sell recommendation.  I will assist in selecting a stock as needed.  The name of your pick will be recorded at the second class.  It is not a matter of whether this is a “good” or “bad” company from any perspective.  The process of analysis is what will determine the grade. Be sure to pick a stock for which there is ample information.  Projects will be graded on both content and form.  The home work assignment is a chance to create a spreadsheet forecast that will be used in the final report.

Your analysismust be typewritten double spaced, no longer than 12 pages (not including attachments/appendixes, tables, references, endnotes, etc.), with all names on each page of the paper and the appendices. Appendices should not exceed 10 pages. (The total  report should not exceed 20 pages.)  The paper will analyze your selected company, project its future earnings, and evaluate its stock as an investment.  Future earnings depend on corporate performance, the general economic/political environment specifically related to the stock, the performance of the stock’s sector within the market.  The approach is to look at the next three years (year end 2014, 2015, 2016) using the last 3-4 reported years as a base.  The extrapolation is based on these reported years plus your analysis of the company and what you expect in the years ahead.  Report and analyze what is most critical to the assessment of the company and investment decision.  This is a distillation of your study and thoughts. 

As such, your paper must contain the following (PLEASE FOLLOW THIS OUTLINE EXPLICITLY,  COVER ALL SECTIONS AT LEAST BRIEFLY—IF YOU DO NOT YOU WILL LOOSE POINTS.  REMEMBER THERE IS NO “CORRECT” ANSWER):

1.     Executive Summary:  a summary of your analysis (one or two sentences about the company and a summary of key points of analysis and recommendation, ½ page); 

2.     Review of the Company and its Business: analysis of the company and its business.  Become familiar with the company and think like an owner.  Key product lines, strengths, Strategic Competitive Advantage; Drivers for growth or contraction, management capacity. What elements exist that could impact valuation?  SWOT Hidden assets or liabilities?  Read the 10K, 10Q’s for 4 quarters, proxy and WWW info for the past 3-6 months; this section should be 3-5 pages.

3.     Economic Forecast: A forecast of the USA and World (if you are dealing with a multinational company) macro economic environment over the next 3 years.  Regional, national and global (multinational or export dominant) as needed and applicable. You can find examples in Brokerage and Bank newsletters or reports (ask??), State Budget Office, Council of Economic Advisors, Congressional Budget Office, WSJ, Barron’s, Business Week and other business periodicals.    GNP or GDP +-% for 2010, 2011 and 2012.   ½-1 page.  During the course I will talk about forecasts I have seen recently.

4.     Stock Market Forecast: A forecast for the USA and world (as needed) stock markets over the next three years.  Will the stock market indices up, down or flat that apply to your stock pick? How much do you estimate (%)?  Specifically the S&P 500 index and other more specific ones increase or decrease and what %?  See:  http://www.bullandbearwise.com/    ½ page.

5.     Sector & Industry Forecast:  A forecast for the company’s business sector and where the sector is headed in the next three years; is your company a strong or weak competitor?  How is this reflected in its comparative valuation versus competitors?  Data is available from IBD http://www.bullandbearwise.com/ (Weekly Ranking) and on the internet from Yahoo and Reuters and other sites. About ½-1 page. 

6.     Ratio Analysis:  Use an Excel table to calculate key solvency and profitability ratios (see the handout—focus on profitability) to identify financial and operational strengths and weaknesses internally and make comparisons with similar companies or direct competitors in the same industry.  Ratio analysis is important for both internal analysis and the comparisons to the industry competitors.  Best to present key ratios in an Excel spreadsheet.  Only use the ratios than mean something when comparing your stock with competitors or the market in general. What do these tell you about the financial condition of your company versus the competition?  Include the Beta for your stock (available on various internet sites like Brokerage sites and Investor’s Business Daily). Yahoo, IBD, Reuters, Brokerage and other internet sites have competitor information. Such a review will allow you to complete #7 and #8 of this outline.  (Most ratios are in the hand-out for class but you may also invent your own for particular situations). About 1-2pages with interpretation of what the ratios mean for your company what do they mean for SWOT.

7.     Company Financial Forecast and Valuation:  See the handout for an example.  This is basically an Excel table with a paragraph explanation or footnotes discussing assumptions used to estimate/extrapolate 3 years into the future. This Spreadsheet takes all your knowledge about the company, its financial and stock performance over the last 3 years, and then forecasts the next 3 years.  These numbers use the knowledge you have accumulated  to do a financial prediction.  The bottom line is your price forecast.  The focus should be on revenue growth and profit margins and the impact of company events and trends on revenue growth and margins.  Answer questions like:  What will be the drivers for revenue and profit growth and will margins expand or contract? Will there be more or less shares outstanding at the end of each year?  Use a table to project three-year revenue, gross margin, operating margin and net margin and profit growth.  Focus on revenues, operating and net profits and earnings per share. Watch for stock buyback or dilution events.   Use # 3, 4, and 5 above of the three base years to determine positive and negative trends that will increase or decrease revenues and earnings per share—then determine the impact on share price and discuss in #8 below. You might also do a small technical analysis:  What does the chart look like?   Add footnotes as needed.    #7 IS THE MOST IMPORTANT PART OF YOUR ANALYSIS WITHOUT WORK YOU CANNOT EXPECT MORE THAN AN 80 OR B GRADE FOR 30%  OF YOUR TOTAL GRADE  Supplementary Valuation:  You may also want to take another approach in the valuation.  Are their “hidden” or contingent assets or liabilities that will have a material impact?  Besides the calculation in 7, you may want to use other value models like:  http://www.diamond-hill.com/investmentmodel.asp or http://www.nasdaq.com/reference/guru.stm.  Here you agree to the terms at the site and then plug in your stock symbol and the model does the calculation based on financial information—nothing more.  The results are often interesting and give you another perspective. Up to 1 page.

8.     Social Responsibility.  How does your company meet the needs of people, planet and profit?  Review briefly what you have discovered.  Do you think its business model is sustainable?  Why? 1 page.

9.     Final Recommendation:  This is a two-part section.  Part 1:  Your view:  What is your conclusion of whether or not to buy/sell/hold the stock and why?  Part 2:  How would a “master investor” (like one of those covered or in the NASDAQ “guru” site) view the stock compared your analysis?  1 page.

10.   Appendixes and References:  Supporting documents such as ratio calculations, financial statements, and references for all the data you uncover and report. 

The report can be up to 15 pages as needed.  Warning!!!!  Plagiarism is a serious offense.  If you use copyrighted/published sources (the Internet, newspapers, TV, magazines, etc.) to obtain information used either directly or indirectly in your paper, you must cite and/or quote them.  Failure to do so will result in a score of ZERO on the project.  Approximately 400-500 words per page, this is average for most single spaced, 12 point fonts, with standard margins).