Question

15) In addition to​ footwear, Kenneth Cole Productions designs and sources​ handbags, apparel, and other accessories. You​decide, therefore, to consider comparables for KCP outside the footwear industry. You also know the following about​ KCP: it has sales of $518 million, EBITDA of $55.6 ​million, excess cash of $100 ​million, $3 million of​ debt, EPS of $1.65​, book value of equity of $12.05 per​ share, and 21 million shares outstanding.

a. Suppose that​ Fossil, Inc., has an enterprise value to EBITDA multiple of 11.11 and a​ P/E multiple of 17.29. What share price would you estimate for KCP using each of these​ multiples, based on the data for​ KCP?

b. Suppose that Tommy Hilfiger Corporation has an enterprise value to EBITDA multiple of 7.74 and a​ P/E multiple of 17.28. What share price would you estimate for KCP using each of these multiples based on the data for​ KCP?

Answer 1

a). EV / EBITDA = 11.11

EV = 11.11 x $55.6 million = $617.716 million

P = [EV + Cash - Debt] / No. of Shares Outstanding

= [617.716 + 100 - 3] / 21 = $34.03/share

P/E = 17.29

P = 17.29 x 1.65 = $28.53

Thus, KCP appears to be trading at a “discount” relative to Fossil.(because KCP’s actual share price [$12.05] is lower)

b). EV / EBITDA = 7.74

EV = 7.74 x $55.6 million = $430.344 million

P = [EV + Cash - Debt] / No. of Shares Outstanding

= [430.344 + 100 - 3] / 21 = $25.11/share

P/E = 17.28

P = 17.28 x 1.65 = $28.51

Thus, KCP appears to be trading at a “discount” relative to Tommy Hilfiger.(because KCP’s actual share price [$12.05] is lower)