The following table has recent data for firms in the pharmacy & consumer goods i

Question

The following table has recent data for firms in the pharmacy & consumer goods industry. Using the comparable multiples valuation method, determine if CVS is correctly valued, over valued, or under valued. Discuss why you think it is correctly valued, over valued, or under valued. Be sure to include any calculations and state any assumptions and their justifications.

Walgreens CVS GNC Average Rite Aid Wal-Mart $59.60 9 S55.58 $95.66 $103.44$108.71 139.37 Stock Price $13.27 $233.11 Revenue 151.53 4.05 2.83 6 13.27 1 0 2 12.79 138.25 $1.3 $36.32 EV/EBITDA Gross Margin 10.63 3.32 Numbero 0 1.46

Explanation / Answer

Walmart and GNC are not exclusive pharmacy companies and hence will not be used as comparables.

We will first consider the EV to EBITDA ratio for the two comparable companies Walgreens and Rite aid.

For Walgreens, EV/EBIDA = 15.74 times

For Rite aid, EV/EBITDA = 10.63 times

Weighted average for above two = {(15.74*103.44) + (10.63 * 13.27)} / (103.44 + 13.27) = 15.16 times

Taking this ratio as base,

EV of CVS = $10.72 billion * 15.16 times = $162.52 billion

Actual EV of CVS = $108.71 billion

Hence, CVS is undervalued.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.