Great Deal! Get Instant $10 FREE in Account on First Order + 10% Cashback on Every Order Order Now

Your paper also needs to include an analysis of the price of your company (using one of the methods covered in chapter 8 of your textbook). I have included an excel template for stock valuation in the...

1 answer below »

Your paper also needs to include an analysis of the price of your company (using one of the methods covered in chapter 8 of your textbook). I have included an excel template for stock valuation in the week 3 folder – please use it!

Library Assignments(AKA SWOT Analysis):

Your company needs to be publicly traded on a US exchange and MUST pay a dividend. It cannot have a beta greater than 1.50.

Answered Same Day Mar 10, 2021

Solution

Tanmoy answered on Mar 14 2021
127 Votes
Stock Analysis of JB Hunt
Executive Summary
JB Hunt is a transportation and logistics company founded by Johnnie Bryan Hunt Johnelle Hunt in Lowell, Arkansas, USA in the year 1961. They have more than 550 tractors and 1049 trailers to operate all across US, Canada and Mexico. They operate in semi-trailer trucks and transportation services throughout the states of USA, Mexico and Canada. They presently employ 27621 people, controls more than 12000 trucks and over 100000 trailers in the countries they serve. They are the 80th largest trucking company in the US and have a net income of $686.26 million as on 2017. We are here to determine the co
ect price of the stock of JB Hunt and determine whether the stock is undervalued or overvalued. If the stock price is undervalued then investment in JB Hunt is a optimal investment while if it’s overvalued then the same investment needs to be halted until the stock price is co
ected.
Analysis of the cu
ent stock price on the basis of constant growth approach
    Do (Dividend)
    1.08
    (in $) Take from Yahoo Finance
    g (Growth)
    5.39%
    5 year growth rate taken from Seeking alpha.com
    rs (Expected return)
    19%
    Expected rate of return taken from Yahoo Finance
    Po (Cu
ent Stock Price)
    8.363
    Stock price (in $)
The cu
ent stock price of JB Hunt is estimated at $8.363. To calculate the stock price various factors were considered like the dividend, growth rate and expected rate of return of JB Hunt which are obtained from few sources mentioned in the table above.
The present stock price of JB hunt as per the stock market NASDAQ as on 13th Mar’ 2020 is $87.89.
It means the stock of JB Hunt is overvalued. This means the opportunity to buy has probably disappeared now for JB Hunt. The company is a transport service provider and is volatile in nature. Thus, until the stock price of JB Hunt is co
ected we should not invest in JB Hunt. But, if we consider the expected rate of return at the rate of 19% (taken from yahoo finance data of JB Hunt) the company looks quite lucrative for the investors.
Now if we do a sensitivity analysis to find the best position to invest or what could be the best stock price by observing the growth, expected rate of return and the dividend we can check it from the below options.
    % Change (Do)
    Last Dividend (Do) (in $)
    Resulting Stock Price
    -27%
    0.79
    6.11
    -22%
    0.84
    6.52
    -17%
    0.90
    6.94
    -13%
    0.94
    7.28
    -9%
    0.98
    7.61
    -5%
    1.03
    7.94
    0%
    1.08
    8.36
    5%
    1.13
    8.78
    7%
    1.16
    8.95
    10%
    1.19
    9.20
    17%
    1.26
    9.78
    21%
    1.31
    10.12
    30%
    1.40
    10.87
    % Change (rs)
    Last expected return (rs)
    Resulting Stock Price
    
    % Change (g)
    Last growth rate (g)
    Resulting Stock Price
    -27%
    7%
    83.47
    
    -27%
    1.92%
    6.44
    -22%
    9%
    29.48
    
    -22%
    2.62%
    6.77
    -17%
    12%
    17.59
    
    -17%
    3.36%
    7.14
    -13%
    14%
    12.79
    
    -13%
    4.05%
    7.52
    -9%
    16%
    10.31
    
    -9%
    4.66%
    7.88
    -5%
    18%
    8.99
    
    -5%
    5.12%
    8.18
    0%
    19%
    8.36
    
    0%
    5.39%
    8.36
    5%
    20%
    7.82
    
    5%
    5.66%
    8.55
    7%
    21%
    7.13
    
    7%
    6.06%
    8.85
    10%
    23%
    6.29
    
    10%
    6.66%
    9.34
    17%
    27%
    5.15
    
    17%
    7.79%
    10.39
    21%
    33%
    4.09
    
    21%
    9.43%
    12.35
    30%
    43%
    3.01
    
    30%
    12.26%
    17.99
Fig.1. Changes in dividends, expected return and growth rate on JB Hunt stock price
Best options points to purchase the share of JB Hunt
Option.1: At an expected rate of return of 19% and growth rate of 5.39%, when JB Hunt pays a dividend of $1.40 which is higher than the actual dividend $1.08, the share of JB Hunt can be purchased at $10.87.
Option.2: At a dividend of $1.08 and a growth rate of 5.39%, the share price of JB Hunt is best at $3.01 where the expected rate of return is 43% and is more than the actual expected return of 19%.
Option.3: At an expected return of 19% and dividend of $1.08 the stock of JB Hunt is best with a growth rate of 12.26% and a share price of $17.99.
All the above options are for a risky investor. For a risk averse investor the options will be different. Hence, it will be entirely upon the risk appetite of the investor to choose which option is optimal for him. The ultimate aim of the investor is to maximize his profit by earning a higher dividend for the investments made by him.
The above graph depicts the changes in dividends, expected rate of return and the growth rate on JB Hunt’s cu
ent stock prices in the sensitivity analysis. The graph depicts that higher is the required rate of return lower is the dividend and growth rate at a negative percentage change in the base and vice versa.
Calculation of expected rate of return, dividend yield and future price of JB Hunt share price
    Po
    8.363
    D1
    1.138
    g
    5.39%
     
    rs (Expected Return)
    19.0%
    Dividend Yield
    13.6%
    No. of years
    5
    P5 (Future Stock Price on 5th Year)
    10.873
The expected rate of return of JB Hunt is calculated as D1/ (Po + g). Here, we have considered Po as the cu
ent price of the stock which is calculated based on the constant dividend growth approach, the D1 which is the Year1 dividend calculated as Do*(1+g) where Do is the actual dividend of the JB Hunt security and g is the growth rate at constant 5.39%. The expected rate of return comes to 19%....
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here