SWM - Mark Moore

Valuation AnalysisThere are two valuation analyses to perform in order to determine Schweitzer-Mauduit’svalue; the methods of comparables and the intrinsic valuation. The methods of comparables area set of ratios used to develop current stock prices. However, the analysis is not back by theory,therefore cannot be relied on too much. We calculated average industry prices, excluding SWM,and set SWM equal to that in order to derive its comparable price. This was performed similarto other ratios. The comparables prices were then compared to SWM’s observed price of $50.95on November 2, 2009. We used a 15% fairly valued interval, meaning anywhere in between$43.31 and $58.60 is considered fairly valued. Any price above $58.60 would mean SWM isundervalued, and any price below $43.31 would mean SWM is overvalued. The methods ofcomparables have many flaws, which is why we were not able to calculate some of the ratios.This was also because most of SWM’s competitors did not have numbers to go off of, or theywere negative. Usually because of this we would not take into account what the ratios havedetermined the value to be, but they ended up being true to SWM’s value as being highlyovervalued.The second valuation analysis is the intrinsic analysis, which is much more precisecompared to the methods of comparables. Each model is backed by financial theory and servesas a sufficient way to determine SWM’s value. The five models analyzed include the discounteddividends model, discounted free cash flows model, residual income model, long run residualincome model, and the abnormal earnings growth model. The discounted dividends and thediscounted free cash flows models both were the least reliable because they use dividends asthe main figure to forecast. Dividends are paid on management’s discretion; therefore it is hardfor one outside the company to forecast. The next three models are of high explanatory power,which is where most would determine a firm’s value. All of the models create a model shareprice that is brought up to time consistent prices as of November 2, 2009. These prices arecompared to the observed price of $50.95 the same way they were compared in the methods ofcomparables; a 15% fairly valued interval. In the case of SWM, all five models have shown thefirm to be highly overvalued. This being said, we are confident in saying that Schweitzer-Mauduit is an overvalued company.16