Punsun Report

Pacific Sunwear of California, Inc. Equity Valuation and Analysis As of November 1, 2007

Brigette Parnell bridge124@aol.com Stacy Schroeder stacy.schroeder@ttu.edu

Table of Contents

Executive Summary Business Analysis Industry Analysis Five Forces Model Value Creation in the Industry Competitive Advantage Accounting Analysis Financial Analysis, Forecasting Financials, And Cost of Capital Estimation Analysis of Valuations Credit Risk Analysis Analyst Recommendation References Appendix

2 3-6 7-11 12-24 25-27 27-30 31-49 50-83 84-99 100 101 102 103-120

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Executive Summary

Investment Recommendation: Overvalued, Sell 11/1/07

PSUN - NYSE (11/1/2007): $15.64 52 Week Range: $13.00 - $23.11 Revenue (2/3/2007): $1,447,204,000.00 Market Capitalization: $1.12 Billion Shares Outstanding: 69,895,000 3-Month ave. Daily Trading Volume: 1,925820 Percent Institutional Ownership: 117.6% Book Value Per Share: $6.81 ROA: 2.72% ROE: -5.49% Cost of Capital est. Estimated 3-Month 1-Year 3-Year 5-Year 7-Year 10-Year Kd: 5.8% WACC: 12.73% R2 0.122 0.123 0.122 0.121 0.122 0.122 Beta 1.64 1.64 1.64 1.64 1.64 1.64 1.64 Ke 15% 15.15 15.15 15.15 15.15 15.15 15.15 EPS Forecast 2007 2008 0.75 0.96 2009 0.97 2010 1.23

Valuations Estimates Actual Price (11/1/2007): $15.64 Ratio Based Valuations Trailing P/E $10.63 Forward P/E $13.18 P/B $23.10 PEG $8.11 P/EBITDA $8.54 EV/EBITDA $4.39 P/FCF N/A Intrinsic Valuations Free Cash Flows Residual Income LR ROE AEG Actual N/A $5.58 $5.60 $4.91 Revised N/A $1.42 N/A $2.27

Altman Z-Score 2002 2003 2004 7.9 5.93 8.68 Revised Z-Score 2006

2005 8.02 1.91

2006 9.87

Ratio Comparison PSUN AE ANF Trailing P/E 27.95 17.47 15.45 Forward P/E 20.91 12.35 14.92 P/B 2.20 3.63 4.64 PEG 1.86 .82 1.00

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Recommendation: Overvalued Firm Industry Analysis

In order to value a firm, one must have an understanding of the industry in which it competes. The specialty retail industry embodies the high competition of aggressive firms....