Present an overview of Nordstrom. Focus on the key drivers of success (i.e., shareholder value maximization), including products, markets, and competition. Discuss the impact of any significant recent domestic and/or global events relating to your company.
Perform a detailed ratio analysis of your target company, specifically from the perspective of a shareholder.
Perform both trend (company historical) and benchmarking (industry) analyses. Present 2-4 ratios covering each of the five types of ratio, showing the three most recent years for your target company, and the industry average for at least the most recent of those years.
Explain the implications of these ratios on the company, and comment critically on the direction of the trends, and why the company’s ratios may differ from the industry average. This is the most important element of the ratio analysis. Cite specific examples from the analysis above to support your comments. For instance, “The Company’s Liquidity seems adequate, as both the Current Ratio and Quick Ratio have been relatively steady over the last three years, and are currently slightly above industry averages of 2.4 and 1.3, respectively.”
Develop projected Income Statements for the next three years.
Project annual revenues based on any reasonable sales forecast, but explain your thinking. For example, “I expect sales to grow 10% faster than the average growth over the last three years of 1.2% per annum, due to the recent expansion into Sweden and Norway.”
Project the major Income Statement expense lines, based on what should be driving the expenses. For example: “Cost of Goods Sold is expected to rise at the same rate as the increase in Sales.” “Administrative Expense is expected to grow at the overall rate of inflation, which I project to be 1% per year.” “Income Tax is expected to remain at the same rate as the previous year of 36.2% of Pre-Tax Income."
Use the Dividend Growth model to calculate a valuation for the company’s stock.
Assume the dividend will grow at the average rate of change in your projected Net Income over the next three years.
Assume the required return is 3% higher than the dividend growth rate.
Compare your calculated valuation to the Company’s current stock price.
Give your own opinion about the future growth potential and prospects, not only of the target company, but also its industry overall, over the next 12 months. You should make reference to all the financial analyses you’ve done, as well as any qualitative factors you find relevant (e.g., future changes in legislative environment, competition, etc.).
Finally, make a specific investment recommendation regarding the acquisition of the target’s bonds, stock, neither, or both? Please give your reasons, with specific references to all the above analyses. For example, “The Company’s profitability ratios handily exceed the industry average, and the company’s liquidity seems adequate, based on its Current Ratio of … However, the projected Income Statements show declining profitability, and the current stock price is 12% higher than the valuation of the Dividend Growth model…”