SWM - Mark Moore

Intrinsic Valuation ModelsThe intrinsic valuations models differ from the method of comparables in the sense thatthey are more precise and are back by financial theories. The models analyzed include thediscounted dividends model, discounted free cash flow model, residual income model, long-runresidual income model, and the abnormal earnings growth model. Each of these models usesthe forecasted figures that have been calculated for SWM for the years 2009 through 2018.With these models, analysts have the opportunity to observe the stock prices by manipulatingthe cost of equity (Ke), the growth rate, and the weighted average cost of capital (WACC). Thisis shown in each sensitivity analysis for the models, where a 15% analyst position is performed.In these analysis’s, model share prices are calculated from a range of different Ke’s and growthrates to help us determine SWM’s overall value.Discounted Dividends ModelThe discounted dividends model is the most straightforward intrinsic valuation model;however it is the most unreliable. This model has the lowest explanatory power than the othervaluation models. In the end, this model shows the present value of future forecasteddividends. This is calculated by finding the present value of the year-by-year dividends pershare (DPS) and the present value of the perpetuity in year 2019. The problem with this modelis that it holds growth rates constant, basically saying that the firm would be paying dividendsforever, which is unrealistic.To value Schweitzer-Mauduit’s stock using the discounted dividends model, the first stepwas to find the total dividends paid using our forecasted financial statements. Next, we dividedthe total dividends paid by the number of shares outstanding, which gave us the total dividendsper share. We then discounted each year’s dividend back to time zero by multiplying each yearby its corresponding present value factor, which gave us the present value for each year. Thesum of the ten years present values gives us the total PV of year-by-year dividends. The nextstep was to determine the present value of the perpetuity in year 2019. The first step is todivide 2019’s forecasted DPS by the cost of equity minus the growth rate, then take thatnumber and multiply it by its present value factor. This discounts the perpetuity to time zero,giving us the present value of the terminal value perpetuity.The sum of the PV of year-by-year dividends and the PV of the terminal value perpetuitygive us a model share price as of 12/31/09. Since we are valuing SWM stock price as of166