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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (55485)6/17/2015 1:37:41 PM
From: Mattyice1 Recommendation

Recommended By
E_K_S

   of 78673
 
EKS - I tend to agree with you on this one.. when I do my valuation blend I tend to land around $35 - $39

I normalize EPS for the GN and get around $39.

When I try to value the operating assets at a normalized operating level and a cost of capital at a normalized rate of 9-10% I land around $35.

I will then mention here that I say normalized because probably the current cost of capital for PG is lot lower - I would estimate in the 5 or 6% range. I just have a hard time putting faith in that low of a number, but lot more smarter people than me can disagree.

Its kind of like why i havnt picked up lot of larger cap O&G companies last couple of years, I use lot higher cost of capital. It seems to me that the bigger they get the more risk they have to take to move the needle.. so I am going to discount for this.. Just my opinion and probably alone on this.

- - - - -

Also it seemed Bruwin is not accounting for reinvestment which i calculate as an essential part of valuation since you have to put that money back in the business - P&G is running at around 14% for the last 10 years or so. To me if i was buffett I would look at sustainable earnings and cashflows.. What can I really rely on and then try to discount what i would pay for that.. I've read all the books.. but who the hell really knows. You can point to this or that chapter, but there is no simple rule.

To me the market is valuing the operating assets to high even at $79. I wouldnt be interested until it was in the 40s.

Here is my valuation with a lot lower cost of capital (5%) and my valuation with a higher cost of capital (10%). Obviously as you, graham, and others have alluded to - rates seem to be the big xfactor here.



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