Wm Wrigley Jr. Company Equity Valuation and Analysis

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Wm Wrigley Jr. Company Equity Valuation and Analysis
Valued November 1, 2007

Dr. MEM Analysts Alan Inman Jonathan Haralson Mark Leonard Pete Nash Shane Nowak alan.r.inman@ttu.edu j.haralson@ttu.edu mark.leonard@ttu.edu peter.nash@ttu.edu shane.nowak@ttu.edu

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Table of Contents
Executive Summary Business & Industry Analysis Company Overview Industry Overview Five Forces Model Competitive Force One – Rivalry Among Existing Firms Competitive Force Two – Threat of New Entrants Competitive Force Three – Threat of Substitute Products Competitive Force Four – Bargaining Power of Buyers Competitive Force Five – Bargaining Power of Suppliers Value Chain Analysis Firm Competitive Analysis Accounting Analysis Key Accounting Policies Potential Accounting Flexibility Actual Accounting Strategy Quality of Disclosure Sales Manipulation Diagnostics 5 10 10 11 13 13 18 20 21 23 24 27 30 30 35 37 39 41

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Expense Manipulation Diagnostics Potential Red Flags Undo Accounting Distortions Financial Analysis Liquidity Ratio Analysis Profitability Analysis Capital Structure Analysis IGR and SGR Analysis Financial Statement Forecasting Income Statement Analysis Forecasted Income Statement Common Size Income Statement Balance Sheet Analysis Forecasted Balance Sheet Common Size Balance Sheet Forecasted Statement of Retained Earnings Statement of Cash Flows Analysis Forecasted Statement of Cash Flows Common Size Statement of Cash Flows Cost of Equity Regression Analysis Cost of Debt Weighted Average Cost of Capital

46 53 54 55 55 64 71 76 78 78 80 80 81 84 86 87 88 89 90 91 92 93 94

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Valuation Analysis Method of Comparables Intrinsic Valuations Discount Dividends Model Free Cash Flows Model Residual Income Model Long Run Residual Income Abnormal Earnings Growth Model Analyst Recommendation Appendix Liquidity Analysis Data Profitability Analysis Data Capital Structure Analysis Data Regression Analysis Method of Comparables Intrinsic Valuation Models References

96 97 102 103 105 107 110 114 116 117 117 118 119 120 132 133 138

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Executive Summary Investment Recommendation
WWY S (11/ 1/ 2007) -NY E 52 Week R ange R evenue Market C ap S hares Outstanding Percent Institutional Ownership Book Value per S hare R OE R OA C of C ost apital 3-month 1-year 5-year 7-year 10-year R 2 -0.0002 0.0001 0.0002 0.0002 0 Beta 0.1916 0.1933 0.1937 0.1936 0.1922 60.19 48.89-68.44 5.19B 16.612B 276M 68.50% 8.65 23.91% 11.87% Ke 0.0664 0.0675 0.0683 0.0694 0.0708

Overvalued, sell
Altman Z-score Valuation E stimates Actual Price (11/ 1/ 2007) Financial B ased Valuations Trailing P/ E Forward P/ E P.E . .G P/ B P/ E BITDA P/ FC F E E V/ BITDA D/ P Intrinsic Valuations Discount Dividends Free C ash Flows R esidual Income LRR esidual Income AE G

November 1 2007
2002 2003 16.52 14.52 60.19 2004 2005 2006 15.08 7.48 6.35

48.42 39.56 N/ A 79.67 71.09 N/ A 28.53

Published Beta Kd(BT) WAC (BT) C

0.53 4.48% 5.68%

28.46 43.83 33.54 25.18 82.82

http:/ / moneycentral.msn.com/

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Recommendation – Sell Industry Analysis The Wm. Wrigley Jr. Company was founded in Delaware in 1891 by William Wrigley, Jr. It became a corporation in 1903 where it moved its corporate headquarters to Chicago Illinois. Wrigley Jr. Company competes in the confection industry with an emphasis on chewing gum. Wrigley began with two gum brands, spearmint and juicy fruit and has since become the words number one manufacture of chewing and bubble gum. The company distributes to over 180 countries and has 15,800 employees worldwide. The Wm. Wrigley Jr. Company is a publically traded company on the New York Stock Exchange under the symbol, WWY. Wrigley’s competitors include Hershey Co. (HSY), Cadbury Schweppes (CSG) and Tootsie Roll Industries Inc. (TR). Competition among firms in the confection Industry is relatively high, because of amount of substitute products in the market. Threat of new entrants is low in the confection industry. New firms have...
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