Based on the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp?

Tips:

We can use time value of money concepts to determine growth rates. For example, if Sales five years ago totaled $3 million and the most current Sales figure is $5 million, then sales grew at a 10.76% rate. The data inputs are: PV = -3; FV = 5; PMT = 0; n = 5 and solve for i.

The dividend discount model is used to find an estimate of a stocks value, or its valuation. It is one of the most widely used methods of stock valuation. The formula is given by D1/(k-g) where D1 is the next expected annual dividend, k is the required return from CAPM and g is the expected growth rate.

Another widely used method to value a firms stock is market multiples. There are several market multiples that can be used: P/E, P/S, P/CF and M/B. P/E or the price-earnings multiple is the most common. P/S is price-to-sales which is favored by investors that realize that sales is much more difficult to window dress than earnings. P/CF is price-to-cash flow and is favored by investors that prefer to use cash flow rather than net income (earnings). Net income doesnt pay the bills, cash does. M/B or price-to-book is used in a few select cases.

Example: If XYZ expected EPS is $3.00 and the P/E of the industry average is 15x. We can use this data to obtain an estimate of what XYZ is worth. P/E x EPS = 15 x 3 = 45. The interpretation is that if the firm is trading at the industry average P/E, then it is worth $45 per share. Note that in all cases, you are using the firms EPS or sales per share or cash flow per share or book value per share. The P/E or P/S or P/CF or M/B ratio, in other words, market multiple, is something other than what the firm is currently trading at.

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EXHIBIT 1.10 Comparable Firms Price Per Share (dollars in millions) Div. Cash Shares Per Total Total and ST LT Net Net Company O/S Low High Share Assets Liabilities Equlv Debt Debt Debt Rev EBITDA EBIT Income Alcoa 1,216.7 $ 15.77 $ 16.03 $0.12 $37,399 $22,605 $1,877 $ 83 $8,769 $6,975 $23,906 $3,556 $2,185 $2,043 54.0 $ 21.30 $ 21.50 $0.37 $ 1,387 $ 677 $ 111 $ 45 $ 246 $ 181 $ 1,307 $ 193 $ 131 $ 81 ThyssenKrupp 565.9 $ 20.64 $ 20.85 $0.11 $41,547 538,348 54,122 $1,071 $6,651 $3,600 $41,304 $2,290 $1,314 $ 210 Allegheny Technologies 108.7 $ 34.59 $ 35.41 $0.72 $ 6,583 $ 3.861 $ 270 $ 18 $1,509 $1,257 $ 4,223 $ 283 $ 106 ($3) Carpenter Technology 53.1 $ 61.75 $ 63.35 $0.72 $ 3,058 $ 1.553 $ 120 $0 $ 604 $ 484 $ 2.173 $ 382 $ 212 $ 133 Precision Castparts 141.8 $209.61 $211.36 $0.12 $19.428 $ 8.471 $ 474 $1.093 $3.493 $4.112 $10,005 $2.927 $2,602 $1.530 LISI WN Enterprise Value MV of Equity CY '14 as Multiple of: as Multiple of: Company MV Enterprise Book Net Net Book Line Name Equity Value Value Rev EBITDA EBIT Income Revenue EBITDA EBIT Income Value 1 Alcoa $13,637 $23,164 $10,599 $23,906 $3,556 $2,185 $2,043 0.97x 6.51x 10.60% 6.68% 1.29% LISI $ 1,332 $ 1.517 $ 709 $ 1,307 $ 193 $ 131 $ 81 1.16x 7.86 11.56x 16.36x 1.88x 3 ThyssenKrupp $ 9,460 $12,924 $ 3,182 $41,304 $2.290 $1,314 $ 210 0.31x 5.64x 9.84x 45.05% 2.97x 4 Allegheny Technologies $ 1.804 $ 3,193 $ 2,598 $ 4.223 $ 283 $ 106 (53) 0.76x 11.28x 30.09x NM 0.69x 5 Carpenter Technology S 1.627 $ 2.220 $ 1,326 $ 2,173 $ 382 $ 212 $ 133 1.02x 5.81x 10.47x 12.25 1.23x 6 Median $ 1.804 $ 3.193 $ 2,598 $ 4,223 $ 382 $ 212 $ 133 0.97 6.51x 10.60 14.31x 1.29% 7 Mean $ 5,572 $ 8,603 $ 3,683 $14,583 $1,341 $ 790 $ 493 0.84x 7.42x 14.51x 20.08x 1.61x Precision Castparts $10,929 $10,005 $2.927 $2,602 $1,530 8 Implied Value Median $9.705 $19,055 $27,581 $21,894 $14,098 9 Implied Value - Mean! $8.404 $21,718 $37,755 $30.722 $17.596 EXHIBIT 1.10 Comparable Firms Price Per Share (dollars in millions) Div. Cash Shares Per Total Total and ST LT Net Net Company O/S Low High Share Assets Liabilities Equlv Debt Debt Debt Rev EBITDA EBIT Income Alcoa 1,216.7 $ 15.77 $ 16.03 $0.12 $37,399 $22,605 $1,877 $ 83 $8,769 $6,975 $23,906 $3,556 $2,185 $2,043 54.0 $ 21.30 $ 21.50 $0.37 $ 1,387 $ 677 $ 111 $ 45 $ 246 $ 181 $ 1,307 $ 193 $ 131 $ 81 ThyssenKrupp 565.9 $ 20.64 $ 20.85 $0.11 $41,547 538,348 54,122 $1,071 $6,651 $3,600 $41,304 $2,290 $1,314 $ 210 Allegheny Technologies 108.7 $ 34.59 $ 35.41 $0.72 $ 6,583 $ 3.861 $ 270 $ 18 $1,509 $1,257 $ 4,223 $ 283 $ 106 ($3) Carpenter Technology 53.1 $ 61.75 $ 63.35 $0.72 $ 3,058 $ 1.553 $ 120 $0 $ 604 $ 484 $ 2.173 $ 382 $ 212 $ 133 Precision Castparts 141.8 $209.61 $211.36 $0.12 $19.428 $ 8.471 $ 474 $1.093 $3.493 $4.112 $10,005 $2.927 $2,602 $1.530 LISI WN Enterprise Value MV of Equity CY '14 as Multiple of: as Multiple of: Company MV Enterprise Book Net Net Book Line Name Equity Value Value Rev EBITDA EBIT Income Revenue EBITDA EBIT Income Value 1 Alcoa $13,637 $23,164 $10,599 $23,906 $3,556 $2,185 $2,043 0.97x 6.51x 10.60% 6.68% 1.29% LISI $ 1,332 $ 1.517 $ 709 $ 1,307 $ 193 $ 131 $ 81 1.16x 7.86 11.56x 16.36x 1.88x 3 ThyssenKrupp $ 9,460 $12,924 $ 3,182 $41,304 $2.290 $1,314 $ 210 0.31x 5.64x 9.84x 45.05% 2.97x 4 Allegheny Technologies $ 1.804 $ 3,193 $ 2,598 $ 4.223 $ 283 $ 106 (53) 0.76x 11.28x 30.09x NM 0.69x 5 Carpenter Technology S 1.627 $ 2.220 $ 1,326 $ 2,173 $ 382 $ 212 $ 133 1.02x 5.81x 10.47x 12.25 1.23x 6 Median $ 1.804 $ 3.193 $ 2,598 $ 4,223 $ 382 $ 212 $ 133 0.97 6.51x 10.60 14.31x 1.29% 7 Mean $ 5,572 $ 8,603 $ 3,683 $14,583 $1,341 $ 790 $ 493 0.84x 7.42x 14.51x 20.08x 1.61x Precision Castparts $10,929 $10,005 $2.927 $2,602 $1,530 8 Implied Value Median $9.705 $19,055 $27,581 $21,894 $14,098 9 Implied Value - Mean! $8.404 $21,718 $37,755 $30.722 $17.596