2015 Valuation Handbook Industry Cost of Capital. Market Results Through March 2015 Duff & Phelps

Transcription

1 2015 Valuation Handbook Industry Cost of Capital Market Results Through March 2015 Duff & Phelps

2 New in the 2015 Valuation Handbook Industry Cost of Capital The 2015 Valuation Handbook Industry Cost of Capital provides cost of capital estimates (i.e., equity capital, debt capital, and WACC) for approximately 200 U.S. industries (identified by Standard Industrial Classification (SIC) code) and size groupings (i.e., Large-, Mid-, Low-, and Micro-capitalization companies), plus a host of detailed statistics that can be used for benchmarking purposes. The 2015 Valuation Handbook Industry Cost of Capital contains data which the valuation analyst will find useful in benchmarking, augmenting, and supporting his or her own custom analysis of the industry in which a subject business, business ownership interest, security, or intangible asset resides. The Valuation Handbook Industry Cost of Capital is in its second year of publication with the release of the 2015 edition. The inaugural 2014 edition was self-published by Duff & Phelps; starting in 2015, the Valuation Handbook Industry Cost of Capital is published by John Wiley & Sons, marking a significant milestone in the evolution of the book. In 2015: We have replaced the Fama-French 3-Factor Model 1 with the Fama-French 5-Factor Model. 2 We produced two additional valuation data resources (also published by John Wiley & Sons): the 2015 Valuation Handbook Guide to Cost of Capital, and the 2015 International Valuation Handbook Guide to Cost of Capital. We welcome reader comments, questions, and suggestions. Your feedback is an important source of information for helping us to constantly improve the Valuation Handbook Industry Cost of Capital, and our related valuation data resources. To order additional copies of the Valuation Handbook Industry Cost of Capital, or other Duff & Phelps valuation data resources published by John Wiley & Sons, please go to: 1 Based upon Eugene Fama and Kenneth French, The Cross-Section of Expected Stock Returns, The Journal of Finance (June 1992): Eugene F. Fama and Kenneth R. French, A five-factor asset pricing model, The Journal of Financial Economics 116 (2015): 122.

3 2015 Valuation Handbook Industry Cost of Capital Duff & Phelps, the premier global valuation and corporate finance advisor with expertise in complex valuation, dispute and legal management consulting, M&A, restructuring, and compliance and regulatory consulting, John to produce a new annual source of industry-level data: the new Valuation Handbook Industry Cost of Capital. The 2015 Valuation Handbook Industry Cost of Capital provides the same type of rigorous industrylevel analysis previously published in the former Morningstar/Ibbotson Cost of Capital Yearbook (discontinued in 2013). The 2015 Valuation Handbook Industry Cost of Capital ships in June 2015 with data through March 2015, and includes three optional intra-year Quarterly Updates (June, September, and December 2015). The 2015 Valuation Handbook Industry Cost of Capital provides analysis of approximately 200 U.S. industries, organized by standard industrial classification (SIC) code. This new publication provides industry-level cost of capital estimates (cost of equity, cost of debt, weighted average cost of capital, or WACC), plus detailed industry-level statistics for sales, market capitalization, capital structure, various levered and unlevered beta estimates (e.g. ordinary-least squares (OLS) beta, sum beta, downside beta, etc.), valuation (trading) multiples, financial and profitability ratios, equity returns, aggregate forward-looking earnings-per-share (EPS) growth rates, and analysis of capital structure including off-balance-sheet liabilities NEW: 2015 Valuation Handbook Industry Cost of Capital Includes optional intra-year Quarterly Updates

4 Table of Contents Table of contents The table of contents of the 2015 Valuation Handbook Industry Cost of Capital is provided in the following two pages, for evaluative purposes. The 2015 version of the book ships in June 2015 with data through March The data exhibits in the Valuation Handbook Industry Cost of Capital include:* 200+ U.S. Industry exhibits (each with 300+ calculated data points) Four Size Groupings (i.e., Large-, Mid-, Low-, and Micro-capitalization stocks), Analyses of the impact of off-balance-sheet debt on the capital structure of each of the 200+ U.S. industries, and Levered and unlevered industry betas calculated with and without the inclusion of off-balancesheet debt for each of the 200+ U.S. industries examined. * Depending on data availability; all data points may not be calculable for all industries.

5 Table of Contents Acknowledgements viii Introduction 1 Who Should Use the Valuation Handbook Industry Cost of Capital 1 Industry-Level Cost of Capital Estimates 2 Industry-Level Statistics, Capital Structure, Valuation Multiples, and Betas 2 Analysis of Capital Structure Including Off-Balance-Sheet Liabilities 3 New in the 2015 Valuation Handbook Industry Cost of Capital 3 Methodology 4 Data Through Date 4 County of Incorporation 4 Company Type 4 Industry Identification by SIC Code 4 Minimum Number of Companies Required 5 Data Sources 5 Company Screening Process 9 Medians and Industry Composites 14 Latest and 5-Year Averages 17 Calculations of Industry Financial Statistics 22 Three Largest and Three Smallest Companies by Sales and Total Assets 22 Annualized Monthly Performance Statistics 22 Number of Companies in the Median, the Composites, and the High-Financial-Risk Category 23 Return Ratios 24 Liquidity Ratio 27 Profitability Ratio 28 Growth Rates 29 Beta Overview 30 Levered Betas 31 Adjusted Betas 34 Unlevered Betas 36 Equity Valuation Multiples 38 Enterprise Valuation (EV) Multiples 41 Fama-French (F-F) 5-Factor Model 46 Cost of Debt 48 Leverage Ratios 49 Cost of Equity Capital Estimates 53 CAPM 54 Cost of Equity Capital Estimates Using the CRSP Deciles Size Study 55 CAPM + Size Premium 56 Build-up Method 58 Cost of Equity Capital Estimates Using the Risk Premium Report Study 60 CAPM + Size Premium 60 Build-up 1 Method 63

6 Discounted Cash Flow (DCF) Models 65 1-Stage DCF 65 3-Stage DCF 67 Fama-French (F-F) 5-Factor Model 70 Weighted Average Cost of Capital (WACC) 72 WACC Calculations 75 Exhibit 11: Distribution of Company-level Average WACC by Industry 78 Exhibit 12: Average and Median of Company-level Average WACC by Industry for Healthy Companies and High-Financial-Risk Companies 79 Appendices Appendix A Relative Impact of Off-Balance-Sheet Debt-Equivalent Liabilities on the Capital Structure, as Measured by Total Capital Appendix B Leverage Ratios and Unlevered Betas Calculated Using (i) Book Debt, and (ii) Book Debt Plus Off-Balance-Sheet Debt Appendix C Definitions of Standard and Poor s Compustat Data Items Used in Calculations Industry Data Exhibits Division A: Agriculture, Forestry, and Fishing Division B: Mining Division C: Construction Division D: Manufacturing Division E: Transportation, Communications, Electric, Gas, and Sanitary Services Division F: Wholesale Trade Division G: Retail Trade Division H: Finance, Insurance, and Real Estate Division I: Services Size Groupings: Large-, Mid-, Low-, and Micro-Capitalization Companies

7 Sample industry page Sample industry page The new 2015 Valuation Handbook Industry Cost of Capital includes analysis of over 200 U.S. industries and 4 size groupings (large-, mid-, low-, and micro-cap stocks). A representative industry data exhibit from the 2015 Valuation Handbook Industry Cost of Capital is provided on the following page, for evaluative purposes. The 2015 version of the book ships in June 2015 with data through March 2015.

8 Data Updated Through March 31, Sales (in millions) Total Assets (in millions) Number of Companies: 187 Three Largest Companies Three Largest Companies Transportation, Communications, Electric, Gas, and AT&T Inc. $132,447.0 AT&T Inc. Sanitary Services Verizon Communications Inc. 127,079.0 Verizon Communications Inc. Comcast Corp. 68,775.0 Comcast Corp. Industry Description Three Smallest Companies Three Smallest Companies This division includes establishments providing, to the general Providence And Worcester Railroad $33.3 HC2 Holdings, Inc. public or to other business enterprises, passenger and freight Sharps Compliance Corp Hudson Technologies Inc. transportation, communications services, or electricity, gas, Loral Space & Communications Sharps Compliance Corp. steam, water or sanitary services. Annualized Monthly Performance Statistics (%) $292, , ,339.0 $ Industry 1-year 3-year 5-year S&P 500 Index Geometric Arithmetic Standard Geometric Arithmetic Standard Mean Mean Deviation Mean Mean Deviation year 3-year 5-year Return Ratios (%) Liquidity Ratio Profitability Ratio (%) Growth Rates (%) Median (187) SIC Composite (187) Large Composite (18) Small Composite (18) High-Financial Risk (20) Return on Assets Return on Equity Dividend Yield Current Ratio Operating Margin Long-term EPS Latest 5-Yr Avg Latest 5-Yr Avg Latest 5-Yr Avg Latest 5-Yr Avg Latest 5-Yr Avg Analyst Estimates Betas (Levered) Betas (Unlevered) Raw Blume Peer Vasicek Raw Blume Peer Vasicek (OLS) Adjusted Group Adjusted Sum Downside (OLS) Adjusted Group Adjusted Sum Downside Median SIC Composite Large Composite Small Composite High Financial Risk Equity Valuation Multiples Enterprise Valuation (EV) Multiples Median SIC Composite Large Composite Small Composite High Financial Risk Price/Sales Price/Earnings Market/Book EV/Sales EV/EBITDA Enterprise Valuation Latest 5-Yr Avg Latest 5-Yr Avg Latest 5-Yr Avg Latest 5-Yr Avg Latest 5-Yr Avg SIC Composite Latest 5-Yr Avg EV/Sales EV/EBITDA Fama-French (F-F) 5-Factor Model Leverage Ratios (%) Cost of Debt Capital Structure Median SIC Composite Large Composite Small Composite High Financial Risk Fama-French (F-F) Components Debt/MV Equity Debt/Total Capital Cost of Debt (%) SIC Composite (%) F-F SMB HML RMW CMA Latest 5-Yr Avg Latest 5-Yr Avg Latest Latest Beta Premium Premium Premium Premium D / TC E / TC Cost of Equity Capital (%) Median SIC Composite Large Composite Small Composite High Financial Risk Weighted Average Cost of Capital (WACC) (%) CRSP Deciles Risk Premium Report Discounted Cash Flow Fama-French Cost of Equity Capital (%) CAPM CAPM Build-Up CAPM Build-Up 1-Stage 3-Stage 5-Factor SIC Composite +Size Prem +Size Prem Model Avg CRSP 9.7 Avg RPR Stage 3-Stage 5-Factor Model Median SIC Composite Large Composite Small Composite High Financial Risk CRSP Deciles Risk Premium Report Discounted Cash Flow Fama-French WACC (%) CAPM CAPM Build-Up CAPM Build-Up 1-Stage 3-Stage 5-Factor SIC Composite +Size Prem +Size Prem Model Low High Average 7.5 Median Duff & Phelps. All Rights Reserved. Duff & Phelps has used the utmost care in compiling the data presented herein, but can not guarantee the accuracy, completeness, or timeliness of the information.

9 2015 Valuation Handbook Industry Cost of Capital Don t Forget the Quarterly Updates! 1 Hardcover book Data through March Quarterly Updates = Data through June, September, and December 2015 Full year of coverage Essential Industry Data Year Round March June September December To order: Add the Quarterly Updates for a Full Year of Coverage The hardcover 2015 Valuation Handbook Industry Cost of Capital includes U.S. industry data updated through March This critical analysis is updated quarterly with data through June, September, and December. 1 Ensure that you are using the most up-to-date data and information available: add the Quarterly Updates, and keep your data library current. 1 Quarterly Updates are (i) optional, and (ii) not sold separately. Quarterly Updates are delivered in PDF format.

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