Multiples analysis: You are an analyst at a private equity firm that buys private companies, improves their operating performance, and sells them for a profit. Your boss has asked you to estimate the fair market value of the Johnson Machine Tool Company. Billy”s Tools is a public company with business operations that are virtually identical to those at Johnson. The most recent income statement for Billy”s Tools is as follows:
|
Revenue |
$1,764 |
|
Cost of goods sold |
1,168 |
|
Gross profit |
$ 596 |
|
Selling, general, & administrative expenses |
211 |
|
Operating profit (EBIT) |
$ 385 |
|
Interest expense |
12 |
|
Earnings before taxes |
$ 373 |
|
Taxes |
147 |
|
Net income |
$ 226 |
All dollar values are in millions. Billy”s had depreciation and amortization expenses of $71 million last year and had 200 million shares and $600 million of debt outstanding as of the end of the year. Its stock is currently trading at $12.25 per share.
Using the P/E multiple, what is the per share value of Johnson”s stock? What is the total value of Johnson Machine Tool Company?