Question
Lee Corp. is expected to experience a transitory turnaround period for three years, during which its dividends are expected to cut the current amount of
Lee Corp. is expected to experience a transitory turnaround period for three years, during which its dividends are expected to cut the current amount of $2.40 by 20% per year during the next two years, and then to grow at 50% over the following year. Afterwards, its dividends will experience sustainable growth indefinitely at an annual rate that reflects a 60% dividend payout ratio and a ROE of 25%. The discount rate is 14%. Compute the intrinsic value of Lee Corp's stock today. If the stock price for Lee Corp. is $50 today, what is your recommendation on this stock according to the intrinsic value analysis? Why? Be precise!
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