You have obtained the following information about five companies and a target yo

ID: 2714843 • Letter: Y

Question

You have obtained the following information about five companies and a target you wish to value, Bakal Distributing. Additional information:

• Bakal had earnings of $751 million in 2000. Earnings were not unusual in this year.

• Expected earnings growth is similar for Bakal and the five comparable companies, all of which distribute computer components.

Price per Share

2000 EPS

Robinson Co.

$ 15.00

$1.01

Jordan Corp.

$ 30.00

$2.85

Ewing, Inc.

$ 27.50

$1.73

Barkley Co.

$ 17.00

$0.78

Pippen Co.

$100.00

$7.21

As part of the analysis, you discover that Jordan has a long-term sales agreement with a major computer components manufacturer, which significantly affects the economics of the business. Neither Bakal nor the other comparable firms have a similar agreement. Barkley’s EPS is after an extraordinary loss from Hurricane Charles. The loss came to $0.33 per share after taxes.

Use a PE analysis to estimate Bakal’s value.