Is the top management of the company solid enough to execute on the promises of the company?

Investment Recommendation
Financial Modeling and Valuation
The goal of the project is to
recommend a buy or sell recommendation for a public company of your choice and to present
your recommendation.
The goal of the project at
the end, is to present your investment thesis for the company that picked in
the second synchronous session. You might pick a company to buy to sell short
depending upon your forecast.
The deliverables
for this project are :
1- A half-page
summary introducing your investment recommendation and the rationale for your
choice. This is an opportunity for you
to receive feedback early in the development of your group project.
2- A half-page
summary analyzing an event that could impact the value of your investment in
the future.
3-
A two-page summary that
contains all the information that is necessary to make a decision on the
investment proposal. This is what the group leaves behind for the investment
committee after making their pitch for the investment committee to remember all
the details of the investment idea.

4-
PPT with graphs and talking
points for each slide.

( all the analysis and graphs and data should
be delivered in xls format and in the PPT)

Details:
1 Investment Strategy
1.1
Investment universe
choose a public
company with at least 5 years of existence so that there are 5 years of data
available. The company can be a large
cap or small cap.
1.2
Investment timeframe
The investment timeframe
would be for 9 to 12 months. This is representative of the holding period for
many pension funds and endowments. It is therefore a timeframe that is
reasonable for which there is some practical rational. This timeframe also allows
to keep the transaction costs low because in most cases we want to keep the
turnover of the investment portfolio low.
1.3
Data
There is public
data available for all public companies.

2 Company Fundamental Analysis
2.1
Macroeconomic
analysis
In this section,
we want to examine the macro environment for the stock. For example, if the
rates are low, probably growth stocks will do better or, if we are in recession
period, value stocks will probably do better. Understanding and incorporating
these macro views are what the industry calls a top view.
2.2
Five-year cash
flow model
gather five-year’s
worth of financial data on the company that they pick. The data includes income
statements from which you can extract the earnings and create a cash model
similar to the one that we build in the class. The model is essentially a
valuation model that will tell you to buy or sell short the company depending
upon your valuation compared to the stock price at the time of your analysis.
Using the five-year cash flow, you will make a forecast on the coming year’s
stock price. This could be a simple extrapolation or any combination of
qualitative and valuation analysis.
3 Management
3.1
Top management
vision
Is the top
management of the company solid enough to execute on the promises of the
company? These are the type of questions that we want to be able to answer when
looking at the top management.
3.2
Management trading
How the top
management has skin in the game. Are they holding on to their own company
stocks? Or are they selling them? You also need to find who owns the stock. You
can find the top 10 largest equity holders as a public information.
3.3
Incentive for employees
and management
We all respond
to incentives. In this section, we want to examine whether employees and
management are well compensated for their performance. Does the company
compensate on merit? Does the company have a clear process to set the expectations
of the employee and management and follow that process?

4
Competitive
Landscape
4.1
Industry
overview
In this part of
analysis, you will compare your company to its sector or industry. You want to
find out whether your company has an edge compared to its competitors in the
industry and whether the company is maintaining its edge if any.
4.2
Disruption
analysis
We know that
technology is very fast to disrupt many established companies. In this section,
we want to examine, on a forward-looking basis, whether there is a danger that
the company that you have picked is in danger of being disrupted by a new
technology. It is important to think about how long it would take to disrupt an
established business. Sometimes, even the best ideas and technologies take time
to displace an old technology. There are many examples that show this trend.
4.3
Research and
development
The R&D of
the company is an important piece in the context of staying competitive and be
to able to forecast and adopt new disruptive technologies. It is however not
very clear how much weight one should assign to R&D in the valuation
models. It all depends on the sector and the specifics of the company. It is up
to you to determine how R&D contributes to the valuation and how much
weight you want to give to it.
5 Risk management
For each
investment proposal, students are required to elaborate on the risk
characteristics of the proposal. Important metrics that should be considered
include the volatility and the maximum loss that your position can withstand.
6
Forward looking design
Students are
required to defend and provide a solid rationale that the investment proposal
will perform according to their expectations going forward. This step is probably
the most important piece of the project.

7 Conclusion
In summary, you
will be able to build and practically design an investment case to buy or sell
short a company with a valuation model of your own that institutional-quality
investors would consider for their own investments. The closer one gets to an
investment proposal that is forward looking and has a solid economic rationale
to perform, the better are the chances of getting an allocation and being
funded from an institution. Indicative Rubrics

Last Completed Projects