J. C. Penney Company, Inc. Equity Valuation and Analysis As of ...

and EBITDA reported on J. C. Penney’s 2006 10-K. By using yahoo finance, wealso came up with our competitor’s PPS and EBITDA. To get reasonablenumbers, we had to place all of the EBITDAs in decimals according to billions. Bydividing the PPS by the EBITDA for each company, we came up with eachindividual P/EBITDA ratio. We then computed an industry average by taking thesum of the P/EBITDA ratios for J. C. Penney’s competitors and dividing thisnumber by four. We got an industry average of 9.47. Then we took thatnumber and multiplied it by J. C. Penney’s EBITDA to get a share price for ourcompany of $21.90. This number indicates that J. C. Penney is extremelyovervalued when compared to our reported price per share.Enterprise Value to EBITDAEV EBITDA(inEV/EBITDA IndustryAverageJCP Priceper ShareBillions)JCP 19.29 2.311 8.34 7.39 72.17KSS 25.20 2.320 10.86DDS 3.95 .625 6.32SSI .92 .145 6.36SMRT .54 .090 6.02A company’s enterprise value is its price per share plus its book value ofliabilities minus its cash and cash equivalents. We computed this number for J. C.Penney to be 19.29. To calculate J. C. Penney’s price per share using thismethod, we first derived an industry average of EV/EBITDA. This number wasdetermined by using the enterprise values of J. C. Penney’s competitors anddividing them by their respective EBITDA. These numbers were reported onJune 1, 2007 by yahoo finance. We took that total and divided by four to get theaverage. When deriving a share price we had to multiply the industry average108