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Exercise 4 – Trading Multiples Analysis
Use a trading multiples analysis to determine the comparables valuation of Brinker Int’l, Inc. (NYSE: EAT) shares as of the latest reported fiscal quarter:
• Use Rosenbaum, & Pearl’s comparable companies template,
• As you can see, I’ve already populated it with the relevant financial data for the target,
• Use Capital IQ to select the best comparable companies in the target’s industry (at least two),
• Copy their data into the template,
• Work with the latest number of basic shares outstanding (no need for an EPS dilution analysis),
• Use a 21% tax rate,
• Make sure to adjust the financials for non-recurring events and non-operating items,
• Select the appropriate valuation metrics for the target’s industry,
• Calculate the trading multiples for your sample of comparable companies,
• Value the target using different multiples and draw a “football field” for better comparison.
Complete the Excel template and write a memo (around 1,000 words plus appendix tables).
The memo should explain:
1.) Why are your firms the best comparables to the target? What is the relevant industry?
2.) How are your comparables similar and how are they different from your target?
3.) How did you normalize the firms’ financials? How did you deal with pre-opening costs?
4.) How does the target perform operationally relative to each of your comparables?
5.) Should the target trade at a premium or discount to each of your comparables?
6.) Which multiple metrics are the most relevant to value the target? Rank them.
7.) How do you explain the valuation discrepancies between the different metrics?
8.) Compare your trading multiples valuation to the share price and explain the differences, if any.
9.) Compare your trading multiples analysis to your DCF valuation (see EX2) and explain the discrepancies in approach and results.
Upload your Excel model and memo via eLearning before the stated deadline.
This is an individual assignment. Make sure your submission always includes a cover page with the assignment name and your name, as well as the word count.