Materials. stock analysis. Fisher College of Business Student Investment Management. Chris Pierce Jyotisko Sinha Colin Souza Jake Vogel Dustin Wills

Transcription

1 Materials stock analysis Chris Pierce Jyotisko Sinha Colin Souza Jake Vogel Dustin Wills Fisher College of Business Student Investment Management

2 Agenda Stock Monsanto () Analysis Alcoa () Analysis Freeport-McMoRan () Analysis Summary Q&A

3 of Increase SIM weight to even w/ S&P 500. Increase of 190 bps to 355 bps. Requires investment in another corporation not currently assigned to the group. Current SIM Weight Proposed SIM Weight S&P 500 Weight Increase/ (Decrease) 1.64% 3.55% 3.55% +1.90%

4 Throughout the Quarter Current Price Target Price Upside / (Downside) $87.98 $79 (10.2%) $29.90 $ % $25.10 $22 (12.4%) $76.61 $75 (13.8%) $57.70 $59 1.5%

5 SELL SIM Portfolio: Currently Own 5200 Shares (1.64% of portfolio) Company: Monsanto () Current Price: $57.70 Target Price: $58 (1.5%) 52 Week Range: $ Market Cap: $31.08B Industry: Chemicals-Agriculture / Fertilizers

6 Monsanto Co. 1 Year Performance Bought Monsanto Co. $82.10

7 Valuation Tables Sector Industry Stock Absolute Basis P/Trailing E P/Forward E P/B P/S P/CF Absolute Basis P/Trailing E P/Forward E P/B P/S P/CF Absolute Basis P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 P/Trailing E P/Forward E P/B P/S P/CF

8 Discounted Cash Flow Analysis

9 Alcoa Company: Alcoa () Current Price: $10.64 Target Price: $14 (37%) 52 Week Range: $ Market Cap: $10.9B Industry: Aluminum

10 Alcoa () DCF Alcoa() Terminal Discount Rate = 12.0% Terminal FCF Growth = 3.0% Year 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Revenue 22,309 24,094 25,781 27,328 28,694 29,842 30,737 31,659 32,609 33,587 34,595 % Growth 11.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% Operating Income 1,539 2,144 2,552 2,979 3,070 3,133 3,166 3,198 3,228 3,258 3,286 Operating Margin 6.9% 8.9% 9.9% 10.9% 10.7% 10.5% 10.3% 10.1% 9.9% 9.7% 9.5% Interest and Other Interest % of Sales 2.2% 2.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Taxes Tax Rate 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% Net Income 779 1,221 1,517 1,671 1,712 1,737 1,743 1,749 1,753 1,756 1,757 % Growth 56.7% 24.2% 10.2% 2.5% 1.4% 0.4% 0.3% 0.2% 0.2% 0.1% Add Depreciation/Amort 1,300 1,373 1,444 1,503 1,549 1,582 1,598 1,615 1,630 1,679 1,730 % of Sales 5.8% 5.7% 5.6% 5.5% 5.4% 5.3% 5.2% 5.1% 5.0% 5.0% 5.0% Plus/(minus) Changes WC 11 (214) (202) (202) (29) (30) (31) (32) (33) (34) (35) % of Sales 0.0% -0.9% -0.8% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% Subtract Cap Ex 1,600 1,687 1,748 1,793 1,819 1,826 1,813 1,798 1,780 1,760 1,737 Capex % of sales 7.2% 7.0% 6.8% 6.6% 6.3% 6.1% 5.9% 5.7% 5.5% 5.2% 5.0% Free Cash Flow ,010 1,179 1,414 1,462 1,497 1,533 1,570 1,642 1,716 % Growth 41.4% 45.6% 16.8% 19.9% 3.4% 2.4% 2.4% 2.4% 4.5% 4.5% NPV of Cash Flows 7,223 53% Debt 9,859 NPV of terminal value 6,322 47% Cash 1,481 Terminal Value 19,637 Projected Equity Value 13, % Cash/share 1.58 Free Cash Flow Yield 4.95% Free Cash Yield 8.74% Shares Outstanding 935 Current P/E Terminal P/E 11.2 Projected P/E Current Price $10.60 Current EV/EBITDA Implied equity value/share $14.48 Terminal EV/EBITDA 5.6 Projected EV/EBITDA Upside/(Downside) to DCF 36.6%

11 Alcoa () Valuation Analysis Sector Industry Stock Absolute Basis P/Trailing E P/Forward E P/B P/S P/CF Absolute Basis P/Trailing E nm P/Forward E P/B P/S P/CF Absolute Basis P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 P/Trailing E nm P/Forward E P/B P/S P/CF Relative to SP500 P/Trailing E P/Forward E P/B P/S P/CF

12 Sensitivity Analysis Discount Rate 11.0% 11.5% 12.0% 12.5% 13.0% Growth Rate 2.0% 43% 35% 28% 21% 15% 2.5% 49% 40% 32% 25% 18% 3.0% 55% 45% 37% 29% 22% 3.5% 62% 51% 42% 34% 26% 4.0% 70% 58% 48% 39% 31%

13 Alcoa () Risks Materials Pricing Global Competition Cost Management Product Demand!

14 Freeport McMoRan () Company: Freeport-McMoRan () Current Price: $70.07 Target Price: $105 (47%) 52 Week Range: $ Market Cap: $33.23B Industry: Diverse Metals/Mining

15 Freeport McMoRan Copper & Gold () Freeport-McMoRan () DCF Terminal Discount Rate = 12.0% 8/16/2010 Terminal FCF Growth = 3.0% Year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Revenue 17,500 18,400 19,300 20,265 21,228 22,183 23,126 24,051 24,916 25,739 26,511 % Growth 5.1% 4.9% 5.0% 4.8% 4.5% 4.3% 4.0% 3.6% 3.3% 3.0% Operating Income 7,907 8,313 8,720 8,714 8,703 8,651 8,788 8,899 8,970 9,266 9,544 Operating Margin 45.2% 45.2% 45.2% 43.0% 41.0% 39.0% 38.0% 37.0% 36.0% 36.0% 36.0% Interest Expense (525) (552) (579) (588) (616) (643) (671) (697) (723) (746) (769) Interest % of Sales -3.0% -3.0% -3.0% -2.9% -2.9% -2.9% -2.9% -2.9% -2.9% -2.9% -2.9% Taxes 2,918 3,068 3,218 2,641 2,629 2,603 2,638 2,665 2,680 2,769 2,852 Tax Rate 30.5% 32.0% 32.5% 32.5% 32.5% 32.5% 32.5% 32.5% 32.5% 32.5% 32.5% Net Income 4,376 4,601 4,827 5,485 5,459 5,405 5,479 5,536 5,567 5,751 5,923 % Growth 5.1% 4.9% 13.6% -0.5% -1.0% 1.4% 1.0% 0.6% 3.3% 3.0% Add Depreciation/Amort 1,225 1,288 1,351 1,469 1,592 1,719 1,850 1,984 2,118 2,188 2,253 % of Sales 7.0% 7.0% 7.0% 7.3% 7.5% 7.8% 8.0% 8.3% 8.5% 8.5% 8.5% Plus/(minus) Changes WC (42) (44) (46) (48) (50) (51) (53) % of Sales 3.6% 1.1% 0.3% 0.1% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% Subtract Cap Ex 1,750 1,840 1,930 1,976 2,017 2,052 2,081 2,104 2,118 2,188 2,253 Capex % of sales 10.0% 10.0% 10.0% 9.8% 9.5% 9.3% 9.0% 8.8% 8.5% 8.5% 8.5% Free Cash Flow 4,484 4,255 4,297 4,999 4,992 5,028 5,202 5,367 5,517 5,699 5,870 % Growth -5.1% 1.0% 16.3% -0.1% 0.7% 3.4% 3.2% 2.8% 3.3% 3.0% NPV of Cash Flows 28,045 56% Debt 6,346 NPV of terminal value 21,630 44% Cash 2,656 Terminal Value 67,181 Projected Equity Value 49, % Cash/share 5.63 Free Cash Flow Yield 13.45% Free Cash Yield 8.74% Shares Outstanding 472 Current P/E Terminal P/E 11.3 Projected P/E Current Price $ Current EV/EBITDA Implied equity value/share $ Terminal EV/EBITDA 6.0 Projected EV/EBITDA Upside/(Downside) to DCF 49.0%

16 Freeport-McMoRan () Valuation Sector Industry Stock Absolute Basis P/Trailing E P/Forward E P/B P/S P/CF Absolute Basis High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Absolute Basis P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P 500 P/Trailing E P/Forward E P/B P/S P/CF

17 Sensitivity Analysis Discount Rate 11.0% 11.5% 12.0% 12.5% 13.0% Growth Rate 2.0% 56% 47% 40% 33% 27% 2.5% 60% 51% 43% 36% 29% 3.0% 66% 56% 47% 39% 32% 3.5% 72% 61% 52% 43% 36% 4.0% 79% 67% 57% 48% 40%

18 Freeport-McMoRan () Risks Declines in the prices of materials Copper Gold Molybdenum Foreign Exchange Rates Natural Disaster/Enviromental Catastrophe Global Political Risk

19 Macro Risks ECONOMY Inflation/Deflation Regulation Global Competition

20 Sell 164 bps of Monsanto. Buy 200 bps of. Buy 155 bps of Alcoa. Increase SIM weight to even w/ S&P 500.

21 Q & A Fisher College of Business Student Investment Management