Stock Analyst Report
You will prepare and present a statistical analysis and create a two-page Analyst Report
that incorporates statistical results and other information for a large publicly traded company. The
report should address questions such as: Would you buy, hold or sell your
company’s stock? Why is this a good (or bad) idea now? What do you see that other
investors fail to grasp? Be sure to compare the company with the ot her companies in its sector.
Your project is due in two parts: the statistical analysis will be due Wednesday, January 29. The
two page Stock Analyst Report and presentation will be due March 3.
The aims of this project are to familiarize the student with information sources on the
Web, to demonstrate the applicatio n of statistical techniques in analysis of stock performance and
risk, and to prepare a concise summary and interpret ation of findings. Each student will be asked
to gather all the relevant information about the economy in general, sector, and the company
itself. The hard part is that you will have to fit all this on two pages maximum for your Stock
Analyst report. I strongly recommend you follow the structure in the sample report available on
the Finance web page (http://www.bloch.umkc.edu/financ e/index. htm).
Here are a few tips:
I. Economic Outlook
A good starting point for any company report is to briefly evaluate pertinent aspects of the
economic environment faced by your company over the relevant time period. Your expectations
for the economy as a whole (e.g., demographic trends, etc.) should be integrated into industry
and company analyses. What is Mr. Greenspan likely to do in the short run? Do you think interest
rates are going up? What do ex perts think on the economy as a whole? The following links
should be more than enough:
CBS Market watch ~ CNB C ~ CNNfn ~ DowJones ~ Barron's ~ Morningstar ~ TheStreet ~
BusinessWeek ~ WSJ
II. Industry Outlook
How is the industry doing in terms of business growth? How does the company rank among its
main competitors? Identify principal determinants of demand for goods or servic es. Evaluat e any
suggestions of technical innovation and competiti ve pressure and discuss their potential effect on
future rates of growth or decline. How do you relat e your selected industry data to that for the
economy as a whole?
Sector Overview ~ US Census Bureau ~ AOL ~ Sector Indices ~ Market Indices ~ Yahoo Finance
III. Firm Analysi s
Compare the companies against the industry (sales, earnings, profit rates, and so on). Briefly
summarize company position within the industry in terms of trends in market share, rates of
growth in revenue and unit sales. Is the company losing money, increasing its profits, increasing
its leverage? Prepare summary charts and/or tables that present significant financial ratios
affecting profits and profitability.
AOL ~ Yahoo Finance
IV. Stati stical Analysi s
Be sure to assemble the pertinent data about the company’s stock and indicators you will use for
comparis on. Remember, statistical analysis is not an end in itself; it is a means toward gaining a
better understanding of your stock’s performance and risk. It should fit within the overall context
of your Analyst Report.
PROJECT EVAL UATION
I. Stati stical Analysi s and Presentation
A. Purpose Statement— Have you clearly explained the purpose of the statistical analysis? Why
have you chosen these statistical procedures? How will the statistics fit into the Analyst Report
and further the objectives of the report?
B. Accuracy— Are the input dat a (stock prices, return, etc.) accurat e? Have you carried out the
statistical procedures correctly? Are the results accurate?
C. Proficiency in Excel—Have you demonstrated effective use of Excel Analysis tools?
D. Interpretation and Understanding—Y ou should not just report your results; you should interpret
them and point out their limitations, if any. Also, statistical results should be int egrated int o the
II. Stock Analyst Report
A. Completeness--How do you compare the company with the companies in its industry? Is this
a good business? Is management capable of delivering outstanding results (ROE, ROA )? Do you
think the company is increasing its profits? What is the bottom line, would you buy/hold/sell?
B. Clarity--Is an appropriate link made bet ween the information present ed and the suggestion
given? Is this stock underpriced (or overpriced)? What do experts think? Are charts and graphs
used efficiently and clearly labeled?
C. Originality--Is new insight offered? What is everyone else missing? Why is the market
D. Professionalism --Does the project development meet high professional standards? Are
information sources carefully cited and footnot ed? Could I tak e this paper to a job interview and
get the job?
E. Presentation—Have you effectively conveyed your results to the class in your presentation?
Are you able to ans wer questions and ―think on your feet‖?
STATISTICAL ANALYSIS AND P RESENTATION
To aid in the preparation of the final Stock Analyst Report, the following statistical analysis will be
completed. The statistical analysis will be due January 29. You should prepare the following
Excel workbook containing dat a, analysis, and res ults. The spreads heets and
calculations should be documented as necessary so that the instructors can follow the
calculations and statistical analysis.
You should follow these steps in conducting the analysis.
Use http://finance.yahoo.com to obtain daily closing prices for your company. Use Excel to
calculate daily returns for the period January 1, 2002 - December 31, 2002. Calculate,
average daily return,
standard deviation of ret urns.
Repeat the analysis for the Dow Jones Industrial A verage (DJIA). Ticker is ^DJI.
Use quicken.com to obtain the intrinsic value for your individual project company (input your
company’s ticker symbol, then go to ―E valuator‖ and ―Intrinsic Value‖.
Your report should contain,
A verage daily ret urn for your stock, Ryourstock
Standard deviation of daily returns, yourstock
A verage daily ret urn for DJIA, RDJIA
Standard deviation of daily returns on the DJIA, DJIA .
Intrinsic value from AOL.
Make sure you enter the correct dates [January 1, 2002 – December 31, 2002]
Make sure you sort the closing pric es by date before calculating daily returns.
Return for day t is (closing pricet - closing pricet-1) / closing pricet-1
You calculated the average and standard deviation of daily returns for your company. Let us call
average daily return for your company as rCompany and
standard deviation of daily returns for your company as Company .
(Thes e are the numbers you already calculated)
You already downloaded the daily closing values for the Dow Jones Industrial A verage and
calculated the daily returns for it. Do the same analysis for Standard and Poors index
(S&P500), ticker is ^SPC. Calculate the average daily returns and standard deviation of
returns for S&P500.
Use Excel to calculate the correlation between the ret urns for your stock and the returns for the
market. In ot her words, calculate
Correlation (RCompany , RDJIA) and
Correlation (RCompany , RSP500).
State which market index (DJIA or SP500) your stock is most related to.
Your report should contain,
A verage daily ret urn for SP500, RSP500
Standard deviation of daily returns for SP500, SP 500
Correlation (RCompany , RDJIA)
Correlation (RCompany , RSP500) and
which market index is your stock most related to.
8. Use Excel or any other statistical software you like (e.g. Minitab) to run the following
1. Daily returns for your company, RCompany , vs. daily returns on the Dow, RDJIA.
The regression equation should look like RCompany = + *RDJIA.
2. Daily returns for your company, RCompany , vs. daily returns on SP500, RSP500.
The regression equation should look like RCompany = + *RSP500.
9. Create two scatter diagrams: your company’s daily stock return relative to the S&P 500
and relative to the Dow Jones Industrial A verage.
10. Create a graph of the daily stock returns for your company, DJIA, and the S&P 500 over
Your report should contain,
The equation RCompany = + *RDJIA,
The R value for the regression,
The equation RCompany = + *RSP500, and
The R value for the regression.
Two scatter diagrams.
Graph of ret urns relative to time.
FURTHER STATISTICAL ANALYSIS
This assignment is due on March 3, along wit h the two-page Stock Analyst report. You should
turn in the Excel workbook for this assignment wit h your report.
In the previous assignment, you estimated two regression equations linking your stock's daily
return to daily ret urns for the market indexes DJIA and S&P500. Now you will use the beta
coefficients () from these regressions to calculate the discount rat e for your company.
1. Calculate the discount rate (RCompany) for your company using the regression equation for DJIA.
The equation you need to us e is
RCompany = rf + *(Rmarket – rf)
where rf is the risk free rat e Rmarket is the average market return and is the beta coefficient that
you estimated in your regression with DJIA.
Call the RCompany value that you obt ain R1.
2. Do the same thing using the value that you obtained from the second regression equation
(i.e. the equation you obtained using S&P500 returns). Call the second discount rate, R2.
3. Now assume your company has just paid a dividend (assume D0 = $1 if your company does
not pay dividends).
3.1. Calculat e your stock's intrinsic value assuming the dividend amount stays constant
forever. (You need to get t wo intrinsic values, one using R 1 and one using R2)
3.2. Calculat e your stock's intrinsic value assuming dividends grow (assume growth = 4%
if the firm does not currently pay dividends). (You need to get two intrinsic values, one using R 1
and one using R2)
4. Use finance.yahoo.com to obt ain the recent EPS value and P/E ratio for your stock. (If these
numbers are not available for your stock, use EPS = $1.35 and P /E = 25) Use your earnings
growth rate (Assume the company 's earnings grow at 4% rate, if earnings are currently negative).
Calculat e EPS for next year and then use this number to calculate the price of your stock next
year, P 1. Then discount the P 1 value back to today and calculate the intrinsic value for your
company today, P 0. (Again you need to get two intrinsic values, one using R 1 and one using R2)
Your report should contain,
R1 and R2 values.
2 intrinsic value estimates for your stock assuming cons tant dividends.
2 intrinsic value estimates assuming dividends grow.
2 intrinsic value estimates using EPS and PE ratios (one using R 1 and the other using