Case Study - Laura Martin is a sellside equity analyst at CSFB. She covers 15 large capitalization stocks and focuses on 2 industries.

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Ques 1. What is the role of Laura Martin? Consider the multiples analysis developed in Exhibits 2, 5 & 6. What assumptions does this analysis rely upon?


Laura Martin is a sell-side equity analyst at CSFB. She covers 15 large capitalization stocks and focuses on 2 industries. Martin estimated that she spent approximately 40% of her time analysing firms she covered, 35% communicating that analysis to buy-side clients and 25% on internal CSFB activities.

Martin has covered the cable industry for the last 5 years. During that time, she had tried to differentiate herself from her competitors through an emphasis on more advanced valuation techniques. While most of her competitors were content with metrics such as EBITDA multiples, Martin had chosen to emphasize discounted cash flow analyses and EVA analyses. Recently, her attention had shifted to real options analysis as she felt other valuation metrics neglected an important aspect of the cable industry.

ROIC Target Price Analysis

Using regression analysis, Martin analysed the relationship between ROIC and the valuation of cable and entertainment companies as defined by the ratio of enterprise value to average invested capital. Martin projected that Cox would improve its ROIC by 0.8% or 80 basis points, in 1999. Martin then used the regression line to estimate the target enterprise value to average invested capital multiple. Adjusted for non-consolidated assets, other assets, cash and option proceeds and debt, Martin inferred a target price for Cox by year-end 1999 of $50. This ROIC “Target Price” Analysis indicated to Martin that Cox had significant upside potential relative to its current stock price of $37.50.

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EBITDA Multiples Analysis

The valuation of Cox Communications has been framed by Martin in the form of EBITDA multiples since it is a common metric in the cable business.

In Exhibit 6, Martin compares how Cox currently traded as a multiple of EBITDA relative to how it would trade if Martin’s target process of $50 and her projections for EBITDA would be realized. According to this analysis, Cox currently traded at 13.3X EBITDA and Martin’s target price would translate into a 20.9X EBITDA multiple for 1999.

This analysis reflected only the past figures and doesn’t account for ...

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