I need to write a stock pitch and e-mail it to a firm just be considered for the ER position. I want to cover the food and foodservice field and I like the prospects of Tyson's takeover of Hillshire Farms from a qualitative viewpoint. Non-cooked protein demand is growing and prepared breakfasts (ie. made by stove) are outpacing population growth; both of these categories fit right in Tyson/Hilshire wheelhouse. Tyson paid a steep price but I don't think analysts realize the synergies gained and growing demand for Hillshire's products.
Anyways, besides having that base, I'm sort of unsure where to start. Do I need to complete a full 3 statement valuation? If so, how do I factor in the potential acquisition?
Thanks for all help in advance.
It depends on how much time they've given you to complete this. If you have a week, then yes you should go HAM. In fact, do a full-blown 3-statement model unless they specifically said not to.
I think it'd be a tough sell to say that sell-side analysts haven't fully accounted for the potential synergies. With synergies, you want to be as conservative as possible. But if you've already decided (after having done a great deal of due diligence, I hope) that there are more synergies to be had and this increased amount will have a vast impact on the valuation, then you can simply project the income statement out for ~5 years with estimates for your margins being based on your assumptions, and tack on the additional synergies to your EBIT.
From there you can generate a mixture of relative valuation methods, as well as DCF. Best would be to create a valuation range using a few multiples that are common to the industry (if you have access, check sell-side reports to get an idea), and a DCF with various discount and terminal growth rates (sensitivity analysis). Toss it all onto a football field, and you'll be golden.
I've written quite a bit about the modelling aspect of it, but I think the qualitative section is just as important, if not more. Make sure you write a damn good report on why you think synergies will be significantly higher.
Will do. Appreciate the knowledge.
It will be interesting to see once I get the numbers laid out but from some quick calcs I think I have a case. I will keep your point in mind as I continue.
I probably wouldn't do a 3 statement model...you don't need to make your own estimates for it. The stock pitch should only be a few minutes long, you don't need to be in there saying "I forecast 2015 EBITDA of ____", using consensus estimates is fine..
Have your 2-3 qualitative points down and be able to speak about (1) valuation metrics and (2) debt metrics relative to peer group. i.e. Tyson is only trading at EV __x '15 EBITDA, below the peer group at __x. I think it should trade at a slight premium to the peer group because the ____ business line is growing at __% and i think there is additional upside to that because of synergies. Also, after the acquisition closes, tyson will only have __x net debt / TTM EBITDA, compared to peer group at ____x.
Just as an anecdote, I was considered for an ER FT position because of the fact I went all out and created a 3-statement model with full financial projections 5 years out and derived a price target. You want to be as granular as possible, essentially guiding the interviewer into your assumptions and thought process. Why X growth rate %? Why have Y assets on the BS increase/decreased? They care just as much about the quality of your stock pitch as well as the amount of effort you put into supporting your thesis.
If I were an analyst, I would want the guy that would want to kill it, not because they have to do it, but because they want to do it.
As an additional tip, make the stock pitch as professional looking as possible (e.g., look at research reports and try to emulate a professional template). It'll separate you from other candidates.
Man I love WSO everyone is always so helpful; albeit, contradictory haha. I think what I'm going to do is go with MFFL for this stock pitch that I have to have written up here by the end of the week.
But because I'm unemployed and graduated, I have the time to sit down and complete a full 3-statement banger. I do think it'd be tough to do Tyson though because I'd have to price Tyson, Hillshire, the potential synergies and the chances of the deal going through. Or am I wrong? Could it be more simple than that?
Thanks again my dudes
I would build a three statement model, but I wouldn't worry about pricing in HSH. You can explain how HSH fits into TSN's business qualitatively.
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