You’re a financial advisor and one of your clients comes to you for advice. He wants to invest in company XYZ. What would be your first steps in order to help your client?
After taking those required steps you investigate the financial data, you find out that the current stock price is $150.00. The company has grown at an average of 5% for the past 10 years. The current rate of inflation is 4% and the current 30-year bond yield(risk free rate) is 3%. The most recent information from the 2016 statement of cash flows, indicates a $1 billion in capital expenditures, $4.8 billion in cash from operating activities and $700 million from investing activities, $500 Million in Dividends and there are 900 million shares outstanding. Using the DCF valuation method used in class, what would you recommend to your client and why?