Forecasting and Estimating Share Value Using the ROPI Model
a) Compute CVS's net operating assets (NOA) as of December 31, 2012.
b) Compute net operating profit after tax (NOPAT) for fiscal year ended December 31, 2012, assuming a federal and state statutory tax rate of 37%.
c) Forecast CVS's sales, NOPAT, and NOA for 2013 through 2016 using the following assumptions:
Sales growth 10%
Net operating profit margin (NOPM) 3.6%
Net operating asset turnover (NOAT) at fiscal year-end 2.67
Forecast the terminal period value assuming a 1% terminal period growth and using the NOPM and NOAT assumptions above.
d) Estimate the value of a share of CVS common stock using the discounted cash flow (DCF) model as of December 31, 2012; assume a discount rate (WACC) of 7%, common shares outstanding of 1,231 million, and net nonoperating obligations (NNO) of $8,448 million.
e) CVS's stock closed at $55.21 on February 15, 2013, the date the form 10-K was filed with the SEC. How does your valuation estimate compare with the closing price? What do you believe are some reason for the difference?