Part Three:
You will perform an in-depth analysis on one of AMAZON Company and prepare a written research report on this company. Your target audience are portfolio managers and analysts. Part Three should be no longer than three pages of single-spaced text and three optional pages of graphs, charts, spreadsheets, etc. The optional items should be used to illustrate and back up the body and conclusion of your research report. Do not include copies of financial statements or charts from the 10K/10Q as the portfolio manager already has access to these items.
The goal of the report will be to determine the intrinsic value of AMAZON company using a DCF valuation model. Determine if AMAZON is overvalued, undervalued, or fairly valued based on your calculations. The important aspects of the report will be the method and logic you use to come up with your “accurate” valuation. The structure of the report and the date/exhibits will be left up to you.
Your valuation must make sense and effectively back-up the report’s conclusion. Include a copy of your valuation spreadsheet as one of your exhibits.
It is useful to become familiar with other Wall Street research reports and see how the “Pro’s” value a company. Once you have your valuation, be sure to compare and contrast your valuation vs. that of the current market. Remember that you will be graded on how well you make your valuation case, using a valuation method that is both sound and accurate.
Major topics to cover in the report:
- Business model analysis
o Who are their competitors?
o How do they make their money?
o Is it sustainable? Scalable?
- Risk/Return and Financial Ratio analysis
o SWOT Analysis / Risks to the Business Model
o What are some of the key ratios and what do they tell you?
- Historical and Future Performance
o How did they do in the past and what made them successful?
o What do they need to do to continue their success?
- Earnings and Cash-flow analysis
o What did you learn by examining the Financial Statements?
o Where are they getting their cash and what are they spending it on?
o Are they at risk of running out of cash?
- Valuation Model
o What assumptions did you use in your model?
o How did you come up with the Risk-Free rate?
o How did you come up with Cost of Capital/Required Return?
o How did you come up with Growth Rate?
o How does this compare to the current market price and what might account for the difference?
