EBAY

EBAY
Sector: Consumer Discretionary
eBay is an online platform that facilitates consumer to consumer and business Last price: USD 55.45
to business transactions. It was formed in 1995 and is based in California. eBay Target Price: USD 3903.28
Key Data:
is one of the success stories dot-com bubble. In addition to providing an Market Cap: 38.808B
online Market place, eBay also operates a Classified platforms through which Outstanding Shares: 699.88
it helps people find what they are looking for in their local communities. Its Key ratios:
platforms enable users to list, buy, sell, and pay for items through various P/E ratio: 8.59
EPS: 6.46
online, mobile, and offline channels that include retailers, distributors,
ROI: 13.87 %
liquidators, import and export companies, auctioneers, catalog and mail-order ROE: 59.96%
companies, classifieds, directories, search engines, commerce participants, ROA: 8.09%
shopping channels, and networks. Current Ratio: 1.58
Dividend Yield: 1.14%
Debt/Equity: 313.27
CHANGE IN BUYING PATTERNS DUE TO THE PANDAMIC:

Due to a country-wide lockdown attempts to control the spread of COVID-19,

online market places such as eBay have gained a lot. The company reported
that it received an additional 8 million buyers during the second quarter of
2020. This contributed to an 18% year on year increase in gross revenue and
a 26% year on year increase in gross merchandise volume. This trend will
continue through 2020.

EXPANDING MANAGED PAYMENTS OFFERINGS:

eBay has been making a conscious effort to rollout more of its payment
offerings along with its marketplace platform. It is intended to do this on a
global scale; particularly for its customer in France, Italy and Spain by 2021.
The company plans to introduce Apple Pay and Google Pay as payment
options in addition to PayPal and credit card options, which are already
available in these countries. The company is also expected to gain strong
traction among sellers of these countries as managed payments will help
them in expanding customer reach. According to second-quarter 2020
earnings release, managed payments offerings have processed $4.7 billion of
gross merchandise volume (GMV) for around 42,000 sellers since its launch.

VALUATION:

A discounted cash flow (DCF) model was used to value the company’s share. 5
years of forecast and a terminal value resulted in our model suggesting that
the share should be priced at USD 3903.28, while the share is currently priced
at USD 55.45. Therefore, our decision is to BUY&HOLD the stock.

ASSUMPTIONS:
• Terminal growth rate is 6.6% (from Simply Wall st)
• WACC is 9.88%, calculated through the CAPM model as shown in
exhibit 2
 • A risk free rate of 0.69% has been taken which is the rate for 10 yr. T-bill
• Market return is 10% based on the historical annualized average return of the S&P 500 index (Investopedia)

Exhibit 1:

Exhibit 2:

RISK TO VALUATION:

About four to six employees of eBay were involved in claims of cyberstalking a couple in Boston who was posting negative
reviews about the online platforms service. Four of those employees including Popp, eBay's former senior manager of global
intelligence, and Zea, a contractor who worked as an intelligence analyst, pleaded guilty.
 AAPL
APPLE
Sector: Information Technology
Apple Inc. was founded in 1977 as designer and manufacturer of personal Last price: USD 116.97
computers. Over the ears it has added tablets, smart watches and Target Price: USD 154.34
smartphones into its product portfolio. is headquartered in Cupertino, Key Data:
California, Apple is known for its famous iPhones, iPad, Apple TV and Air pods Market Cap: 2T
Outstanding Shares: 17,100M
etc. It also provides digital content stores and streaming services; AppleCare Key ratios:
support services; and iCloud, a cloud service, which stores music, photos, P/E ratio: 35.49
contacts, calendars, mail, documents, and others. In addition, the company EPS: 3.3
offers various service, such as Apple Arcade, a game subscription service; ROI: 21.91%
ROE: 69.25%
Apple Card, a co-branded credit card; Apple News+, a subscription news and
ROA: 13.12%
magazine service; and Apple Pay, a cashless payment service, as well as Current Ratio: 1.47
licenses its intellectual property, and provides other related services. Dividend Yield: 2.05%
Debt/Equity: 169.04
VIRTUAL LAUNCH EVENT REGARDING 5G CAPABILITES AND AIR
TAGS:

Apple is set to launch its first 5G device on October 13 th, which promises users
greater speeds and significantly lower lag times. The tagline for the launch,
which will occur virtually beginning at 1 p.m. ET, is “Hi, Speed.” Investors are
also hoping that this will coincide with a rollout of products and upgrade
cycles, similar to the one that occurred in 2014 with the launch of the iPhone
6. Already four new iPhone 12 devices are planned for the rollout.

It is also expected that Apple will launch “Air Tags” at its October 13 th event,
which is similar to Tile’s Bluetooth trackers. It will allow customers to place
trackers on small items like wallets and keys etc.

EPIC GAMES LAWSUIT:

In August, Epic Games, the created of fornite, attempted to encourage

customers to use their new payment services system instead of App Store and
Play store. In the process they tried to divert customers from Apple and
Google, which deprived them both companies of their 30% share in the
profits. On 10th October, a federal judge ruled in favor of Apple citing that Epic
Games was in violation of the terms of the contract. As per the decision Apple
is allowed to Bar Fortnite but cannot harm Epic Games developer tools
including its Unreal Engine. This is likely to encourage investors and will
contribute to an increase in the share price

VALUATION:

A discounted cash flow (DCF) model was used to value the company’s share. A
forecast of 5 years and a terminal value resulted in our model suggesting that
the share should be priced at USD 154.34, while the share is currently priced
at USD 116.97 (as of 10/10/2020). Therefore, based on the 24.22% our
decision is to BUY&HOLD the stock.
ASSUMPTIONS:
• Terminal growth rate is 6.8% (from Simply Wall st)
• WACC is 11.58%, calculated through the CAPM model as shown in exhibit 4
• A risk free rate of 0.69% has been taken which is the rate for 10 yr. T-bill
• Market return is 10% based on the historical annualized average return of the S&P 500 index (Investopedia)

Exhibit 3:

Exhibit 4:

RISK TO VALUATION:

Apple along with other big tech companies including Google, has been highlighted by the House Judiciary subcommittee as
having unprecedented monopoly power particularly in the app distribution business through its App Store application. The
report claims that it has created and operated App Store in a way that has created barriers for competition. in the past year has
received an increasing number of complaints from iOS app developers over its
PEG
rules to include in-app purchases and to remove any mentions from their app Sector: Utilities
as to where consumers could pay for a subscription outside the App Store. Last price: USD 57.56
ProtonMail has asserted that Apple forced it to add in-app purchases when its Target Price: USD 131.78
app was being offered for free and when it alerted its customers, Apple Key Data:
Market Cap: 29.111B
threatened to block and remove the app.
Outstanding Shares: 505.76M
Key ratios:
P/E ratio: 16.83
EPS: 3.42
ROI: 3.38 %
ROE: 9.59%
ROA: 3.05%
Current Ratio: 0.64
Debt/Equity ratio: 1.01

PUBLIC SERVICES ENTERPRISE INC

Public Services Enterprise Group (PSEG) is based in New York and was
incorporated in 1985 primarily as a gas and electrical company (PSE&G). Over
the years it has expanded its holdings to also include PSEG Power. The PSE&G
segment transmits and distributes electricity and gas to residential,
commercial, and industrial customers, as well as invests in solar generation
projects, and energy efficiency and related programs. As of December 31,
2019, it had electric transmission and distribution system of 25,000 circuit
miles and 858,000 poles; and 18,000 miles of gas mains, 12 gas distribution
headquarters, 2 sub-headquarters, and 1 meter shop. The Power segment
operates nuclear, coal, gas, oil-fired, solar, and renewable generation
facilities. In 2009, PSEG began installing solar panels on 200,000 utility poles in
its service area in a project costing $773 million, the largest such project in the
world.

APPROVAL OF PSE&G’S NEW JERSEY ENERGY EFFIECENY PLAN:

In late September of this year, New Jersey regulators announced their

approval of PSE&G’s plan to invest approximately $1 billion in various energy
efficiency plans. The company is trying to slowly exit the fossil fuel industry; it
plans to sell some of its non-nuclear energy plants by 2021 and it is instead focused on investing in off shore wind farms that
will be ready by 2024. An exit from the fossil generation business would accelerate PSEG's transition to a primarily regulated
and contracted business, with a zero-carbon generation platform.  Given the relatively small part of PSEG that the non-nuclear
business represents, this decision will not have an impact on the company's current shareholder dividend policy, which will
continue to be subject to approval by the PSEG Board of Directors. This will contribute to the New Jersey governor’s plan to cut
carbon emissions by 8 million metric tons by 2050. According to sources this investment by PSE&G will also contribute to the
creation of about 4300 jobs and lower bills for customers which will provide some relief to citizens who are still suffering from
the economic effects of the COVID-19 pandemic.

VALUATION:

A discounted cash flow (DCF) model (Exhibit 5) was used to value the company’s share. 5 years of forecast and a terminal value
resulted in our model suggesting that the share should be priced at USD 131.78, while the share is currently priced at USD
57.56 (as per 10/10/2020). This indicates that the stock is undervalued by 56.32% therefore; our decision is to BUY&HOLD the
stock.

ASSUMPTIONS:
• Terminal growth rate is 2.9%.
• WACC is 3.38%, calculated through the CAPM model as shown in exhibit 6
• A risk free rate of 0.69% has been taken which is the rate for 10 yr. T-bill
• Market return is 10% based on the historical annualized average return of the S&P 500 index (Investopedia)

Exhibit 5:
Exhibit 6:

RISK TO VALUATION:

 Overall riskiness of the market due to the pandemic

 Recently PSEG filed an application to retain $300 million in ratepayer subsidies annually to keep its fleet of nuclear
plants in South Jersey operating. Without new financial incentives, the company’s CEO Ralph Izzo threatened to close
the plants, which supply roughly 90% of the carbon-free electricity used by customers in New Jersey. This reflects the
overall sentiments of those operating in the Nuclear power industry; six plants have already closed because they could
not compete with cheap natural gas providers. It is argued that for state officials to seek assistance on clean energy
goals, subsidies and incentives should be provided to the industry. The Division of Rate Counsel is trying to overturn
the original subsidies in the state court appellate division.