I am a teacher first, who also happens to love untangling the puzzles of corporate finance and valuation, and writing about my experiences. Aswath Damodaran on Valuations amid COVID-19: “Go Back to Basics” ... As a case study, Damodaran provided his valuation analysis of Boeing — a company whose revenues were already plummeting due to the mishandling of the 737 Max incidents and that was also hit hard during the pandemic because airlines are its primary customer base. All else equal, public markets are focused on expected future cash flows. But the public and private market valuations have recovered and grown on balance. “When oil companies default or when travel companies and airlines refuse to pay on their loans, guess who’s holding the loans?”. “There was actually a rationality of how markets knocked down stocks,” he said. Over a fairly long career the markets have been crazy during the energy crisis, the real estate induced recession in the mid 1970s, the recession in the early 1980s, the Black Monday debacle in 1989, the recession in the early 1990s and on and on. NVIDIA is among the most battered stocks in the semiconductor space over the last three months due to multiple headwinds including a decline in memory chip prices, softness in industrial and automotive semis, and the broader market sell-off in December last year. “It’s all going to be okay,” he said. How to value companies during Covid-19, with Aswath Damodaran As the world grapples with volatile markets as a fallout of Covid-19, Damodaran, often called the … Aswath Damodaran's stories. I teach corporate finance, valuation and investment philosophies at the Stern School of Business at New York University. Taught by Professor Aswath Damodaran, one of the leaders in the field, Advanced Valuation is for analysts, financial officers, and portfolio managers seeking a deeper understanding of valuation, and the skills and knowledge to confidently make financial decisions. New probabilities for the company’s “Failure Risk.”. You can’t easily substitute for Boeing.” He further added, “I don’t think you can tar all these companies which have China exposure with the same brush.”. As a so-called valuation experts we look at the COVID-19 pandemic from business and valuation perspectives. Financial services, which fell 26% from 14 February to 1 May 2020. The company’s China exposure and broader market sell-off in December led to a massive decline in its stock. 7 In$capital$structure:$The$costof$capital$as$ “opCmizing”$tool$ The optimal debt ratio is the one at which the cost of capital is minimized With Investment Philosophies he provides the uncensored facts about winning in the market place. Damodaran singled out those linked to travel, consumer discretionary, and people-intensive businesses, those with high fixed costs, and young start-ups — and across the board, those with high net debt loads. Practical analysis for investment professionals. Summary. Record credits easily using the CFA Institute Members App, available on iOS and Android. All posts are the opinion of the author. We promote the highest ethical standards and offer a range of educational opportunities online and around the world. Aswath Damodaran 46 Effect of Moving to the Optimal on Firm Value n Re-estimate firm value at each debt ratio, using the new cost of capital. I’ve said for many years that we value private companies and their expectations with a rear view mirror focused on valuation-date expectations in the public markets and private transaction markets. Aswath Damodaran has a blunt message for companies considering an acquisition: “Don’t do it.” “I firmly believe that acquisitions are an addiction, that once companies start to grow through acquisitions, they cannot stop,” he told the audience at the CFA Institute Equity Research and Valuation Conference 2018.. “Everything about the M&A process has all the hallmarks of an addiction.” › Stop treating everything marquee investors say as the gospel truth: Aswath Damodaran. more information Accept. Continued. View the profiles of people named Aswath Damodaran. The world’s largest industrial conglomerate’s (XLI) stock plunged drastically last year after the company reported a $23 billion loss for the third quarter of 2018. Aswath Damodaran has 34 books on Goodreads with 15246 ratings. Just within three months, it attained a 52-week high of $394.28 on October 3. Professor Aswath Damodaran explains why he believes Nvidia, Boeing and GE stock will increase in value — January 9, 2019 Excerpt from CNBC -- "Investors can bet on names such as Nvidia, Boeing and General Electric as the markets attempt to stage a comeback, markets guru Aswath Damodaran told CNBC on Wednesday. Private company values must be similarly asses. The common denominator for many of the worst affected companies was high up-front investment usually funded with debt. As a case study, Damodaran provided his valuation analysis of Boeing — a company whose revenues were already plummeting due to the mishandling of the 737 Max incidents and that was also hit hard during the pandemic because airlines are its primary customer base. Everything I have learned about valuation has been in the context of a crisis.”. Select articles are eligible for Professional Learning (PL) credit. “It is precisely times like these that matter most,” he said. Aswath Damodaran Before coming to Stern, he also lectured in Finance at the University of California, Berkeley. Aswath Damodaran "Damodaran is a well-informed scholar with a gift for organized, clearly written syntheses of complex topics in modern finance. All rights reserved. Aswath Damodaran had some advice for the audience at the 73rd CFA Institute Annual Virtual Conference: Don’t abandon valuation fundamentals during the COVID-19 crisis. Previously, she developed strategies for pension, endowment, and foundation fund clients at Equitable Capital Management (now AllianceBernstein), and she has also worked as an auditor for Coopers & Lybrand (now PricewaterhouseCoopers). Nvidia is undervalued and is a good buy for the long term, Wall Street’s “dean of valuations” Aswath Damodaran says. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer. Investors can bet on names such as Nvidia, Boeing and General Electric as the markets attempt to stage a comeback, markets guru Aswath Damodaran told CNBC on Wednesday. If you liked this post, don’t forget to subscribe to the Enterprising Investor. Aswath Damodaran 15 Tax Rate Estimates Boeing Home Depot InfoSoft Taxable Income 1397 2654 1685 Taxes 277 1040 707.7 Effective Tax Rate 19.83% 39.19% 42.00% Average Effective Tax Rate:94-98 20.44% 38.78% 42% Marginal tax rate 35% 35% 42% We will use the 35% tax rate to value Boeing and the Home Depot and 42% for InfoSoft. Damodaran’s optimism toward Boeing seems to be due to the company’s huge order backlog and massive cash flow generating abilities. Aswath Damodaran (born 23 September 1957), is a Professor of Finance at the Stern School of Business at New York University (Kerschner Family Chair in Finance Education), where he teaches corporate finance and equity valuation. Aswath Damodaran had some advice for the audience at the 73rd CFA Institute Annual Virtual Conference: Don’t abandon valuation fundamentals during the COVID-19 crisis. Aswath Damodaran, finance professor at NYU Stern School of Business, discusses the value in this market. Regardless, intuitively, risk increased some. I teach classes in corporate finance and valuation, primarily to MBAs, but generally to anyone who will listen. Julia Hammond, CFA, is a director in the Educational Events and Programs group at CFA Institute, where she leads the planning for a number of annual and specialty conferences, including the Fixed-Income Management Conference, the Equity Research and Valuation Conference, the Latin America Investment Conference, the Alpha and Gender Diversity Conference, and the Seminar for Global Investors, formerly known as the Financial Analysts Seminar. Since December 26, Boeing stock has made a remarkable recovery with gains of ~18%, but it is still down ~13% from its 52-week high. Traditional “safe” stocks with low P/E ratios, low momentum, and high dividend yields were actually among the least safe places to hide. Save my name, email, and website in this browser for the next time I comment. Damodaran sees long-term opportunity in General Electric (GE) stock if CEO Larry Culp succeeds in offloading the company’s underperforming assets and lowers debt. He has been called Wall Street's "Dean of Valuation", and is … hide. If you’re wrong, revisit your valuation.”. “This [COVID-adjusted] model gives you the tools to try to get your hands around where the index should be,” he said. report. Join Facebook to connect with Aswath Damodaran and others you may know. The same advice is true now, although market guidance may not be crystal clear. However, Culp’s speedy divestment and spin-off actions have somewhat helped the company gain investor and analyst confidence. Damodaran started with a damage assessment of financial markets during the worst part of the crisis, from 14 February to 20 March, when the United States and Europe realized that novel coronavirus was not contained to Asia. About Me. He earned his MBA and Ph.D degrees from the University of California in Los Angeles. NVDA: he bought it at $145 and still under water. The finance professor stated that the three stocks are currently undervalued and can make a sharp upswing if the broader market trends higher. Aswath Damodaran is the Professor of Finance at the Stern School of Business at New York University. How the crisis will affect revenues and company operations in the near term. Through video lectures, live online meetups, and a hands-on valuation project, students will learn how to estimate the value of any business, small … Then there has to be an intensive focus on during and post-pandemic cash flows. Thanks again and look forward to your valuation for Boeing and Zoom. What firms and sectors are in the eye of the COVID-19 storm? Damodaran said NVIDIA is a long-term growth company, and the stock is currently available at an attractive price. I focus on valuation and corporate finance. This year, archived recordings of every presentation from the CFA Institute Annual Virtual Conference will be available online, with additional insights and commentary published on the CFA Institute Annual Virtual Conference blog. And not all market participants will have identical future expectations. The stock has made a sharp recovery in the last one month and is up ~30% since the December 11 closing price of $6.75. The public markets are assessing inherent risk of the pandemic in light of specific expectations for future cash flows industry segment by segment. in Management from the Indian Institute of Management. The best-performing industries ranged from those providing possible solutions to the COVID-19 pandemic, such as health care, pharmaceuticals, and biotech, with the possibility of generating profits, to low capital intensity businesses and those supplying everyday goods like toilet paper and food.