Question

Coca-Cola has expected EPS of $2.1. Its competitors have the following P/E ratios: Dr Pepper Nestle Pepsico P/E ratio 22.07 23.49 21.37 Part 1 What is the intrinsic value based on the lowest P/E ratio? Part 2 What is the intrinsic value based on the highest P/E ratio? Part 3 What is the intrinsic value based on the average P/E ratio?

Answer 1

The Intrinsic value is calculated by multiplying the Earnings per share by the P/E ratio.

1. The lowest P/E ratio is 21.37 so the intrinsic value is;

Intrinsic value = 2.1 * 21.37

= $44.88

2. Highest P/E ratio is 23.49

Intrinsic value = 2.1 * 23.49

= $49.33

3. The average P/E ratio is;

= (22.07 + 23.49 + 21.37)/3

= 22.31

Intrinsic value = 2.1 * 22.31

= $46.85