Last Year Ragan inc had an EPS of $3.15 and paid a dividend to Carrington and Geneieve of $45000 each. Between the siblings gave each 50,000 shares of stock. In the event either wished to sell stock, the shares first had to be offered to the other at a discount price. The company also had a return on Equity of 17%. The siblings believe that 14% is an appropriate required return for the company.
Although neither sibbling wants to sell, they have decided that they should value their holdings in the company? To get started they have gathered the following information about their competitors:-
Arctic Cooling, Inc:- EPS $1.30 Dividends $0.16, Stock Price $25.34, ROE 8.50% and required Rate:- 10%
National Heating and cooling:- EPS:- 1.95, Dividends:- 0.23, Stock Price:- 29.85, ROE:- 10.50, and Required Rate is 13%
Expert Hvac corp:- EPS:- -0.37, Dividends:- 0.14, stock price:- 22.13, ROE:- 9.78, and required Rate:- 12%
Industry average for EPS:- 0.96, Dividends:- $0.18, Stock Price:- $25.77, ROE:- 9.59% and Required Rate:- 11.67%
Expert Hvac corporation's negative earnings per share were the result of an accounting write off last year. Without the write off, earnings per share for the company would have been $1.10.
Questions:-
1. Assuming the company continues its current growth rate, what is the value per share of the company's stock?
2. To verify their calculations, carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst and covered the hvac industry. Josh has eamined the company's financial statements, as well as those of its competitors. Although Ragan INC currently has a technological advantage, his research indicates, that the other companies are investigating methods to improve efficiency. Given this, Josh believes that the company's technological advantage will last only for the next five years. After that period, the company's growth will likely slow to the industry growth average. Additionally josh believes that the required return is too high. He believes the industry average required return is more appropriate. Under the assumption, what is the estimate of the stock price?