Consumer Discretionary

Transcription

1 Consumer Discretionary Jonathan Barkan Chris Cameron Yixiong Chen Amanda Grant November 2, 2010

2 Agenda Sector Overview Economic Analysis Business Analysis Financial Analysis Valuation Analysis Recommendation

3 Sector Overview S&P 500 vs SIM Telecommuni cation Services 3% Materials 4% Information Technology 19% S&P 500 Weight Utilities 4% Cash 0% Dividends Receivables 0% Consumer Discretionary 10% Consumer Staples 11% Energy 11% Telecommunic ation Services 4% Materials 4% Information Technology 19% SIM Weight Utilities 2% Cash 3% Consumer Discretionary 10% Dividends Receivables 0% Consumer Staples 10% Energy 11% Industrials 11% Healthcare 12% Financials 15% Industrials 13% Healthcare 12% Financials 12% As of September 30, 2010 Currently, Consumer Discretionary is 10.42% of the S&P 500 and 10.14% of the SIM Portfolio.

4 Sector Overview Consumer Discretionary Demand Characteristics In Maturity Phase Heavily influenced by both US and Foreign Economies Reliance upon Discretionary Income External Factors that affect demand Energy prices Employment Discretionary Income Time of Year

5 Sector Overview Consumer Discretionary Supply Characteristics Forecasted Externally Driven Development of new products Expansion New Markets Domestically and Abroad Branch Openings

6 Sector Breakdown 10.58% of S&P 500 Industries include:

7 Sector Breakdown Industry Index Value % of Sector Cable & Satellite % Home Improvement Retail % Movies & Entertainment % Restaurants % Internet Retail %

8 Sector Breakdown

9 Sector Breakdown

10 Economic Analysis: Consumer Spending vs. Consumer Discretionary

11 Economic Analysis: Consumer Confidence vs. Consumer Discretionary

12 Economic Analysis: Unemployment vs. Consumer Discretionary

13 Porters 5 Forces: Entry Threshold For the Consumer Discretionary High capital expenditures in certain industries i.e Carnival Corporation and Royal Caribbean Cruise Line Intense competition in certain industries i.e the restaurant section. Mom and pop restaurants and McDonald are existing together.

14 Porters 5 Forces: Numerous Substituting Products & Competition Some businesses offer similar products or even homogenous products i.e Comcast / Time Warner For businesses such as Comcast, price seems the most important factor to the business

15 Porter s 5 Forces: Intense Competition Competition is quite intense! There are numerous rivalries in each business field Companies in this sector need to have high competitive advantages in order to achieve superior performance

16 Porter s 5 Forces: Suppliers Power & Buyer s Power The Suppliers Power to this business sector is weak with multiple vendors and distribution lines, except the cruise line and cable satellite business Buyers Power is significant. Buyers power is highly correlated to the following Economic indicators 1. Employment Rate 2. Personal Saving rate (negative related) 3. Consumer Spending Rate 4. Crude Oil Price

17 Financial Analysis vs. S&P 500

18 Financial Analysis vs. S&P 500

19 Financial Analysis vs. S&P 500

20 Financial Analysis - Absolute Revenue Net Profit Margins (relative to S&P 500) EPS Growth yr. over yr. EPS Growth yr. over yr. (relative to S&P 500)

21 Financial Analysis Industry Ticker Price YTD Performance 5 Yr. Performance EPS - 5 Yr. Hist. Growth Cable & Satellite Comcast Direct TV Home Improvement Retail Home Depot Lowes Movies & Entertainment Disney Dreamworks Restaurants Bob Evans McDonald's Internet Retail Amazon CMCSA DTV HD LOW DIS DWA BOBE MCD AMZN $ % 13.4% 27% $ % 210.2% 28% $ % -23.0% -13% $ % -28.5% -10% $ % 53.3% 8% $ % 42.0% 11% $ % 31.7% 16% $ % 140.0% 18% $ % -1.3% 35%

22 Financial Analysis 25.00% 20.00% 18.34% 20.65% Profit Margin 15.00% 10.00% 5.00% 9.58% 6.27% 4.39% 3.87% 10.54% 6.47% 3.64% 7.19% 0.00% 70.00% 68.21% 60.00% 50.00% 47.42% 40.00% Return on Equity 30.00% 20.00% 10.00% 0.00% 8.30% 15.06% 9.74% 11.14%11.37% 10.62% 0.00% 22.44%

23 Valuation Analysis vs. S&P 500

24 Valuation Analysis Industry Ticker P/E - Forward P/B P/S P/CF Cable & Satellite Comcast CMCSA Direct TV DTV Home Improvement Retail Home Depot HD Lowes LOW Movies & Entertainment Disney DIS Dreamworks DWA Restaurants Bob Evans BOBE McDonald's MCD Internet Retail Amazon AMZN Netflix NFLX

25 Valuation Analysis Forward P/E Sector P/S Sector Price C/F Sector P/B Sector

26 Recommendation: HOLD Short term upside towards holiday season Decreased consumer expenditures / higher unemployment Risks: Recession stalls or double dip resulting in negative EPS growth

27 Recommendation: Industry Suggestion Overweight: Cable & Satellite Growth of internet access and subscribership Underweight: Home Building Lagging home sales, foreclosure glut