CONSUMER DISCRETIONARY STOCK PITCH. 4/2/2013 The Ohio State University SIM Portfolio Nolan Cox Shengyu Cao Trey Morrish Ziyang Zhong

Transcription

1 CONSUMER DISCRETIONARY STOCK PITCH 4/2/2013 The Ohio State University SIM Portfolio Nolan Cox Shengyu Cao Trey Morrish Ziyang Zhong

2 Overview

3 Key Takeaways S&P % SIM 12.28% SIM Overweight by.54% SIM inclusion of cash and dividends

4 Consumer Discretionary

5 Recommendation: Underweight Positives Revenue continually increasing Stable EPS Growth De-levering of consumer debt Negatives Quantitative Easing Volatile Sector All-Time Highs in Indices

6 Recommendation: Underweight 50 basis points below S&P 500 distribution 11.2% Sectors we like Media General Merchandise

7 STOCKS TO DROP

8 Michael Kors: Business Apparel & Accessary A global luxury lifestyle brand 3 Major Segments: retail (48.14%) wholesale (46.85%) licensing (5%) Current Price: $56.79

9 Michael Kors: Holding Current Weight: 2.3% Desired Weight: 0% Target Price: $53.35 DCF Value: $53.99 Multiples Value: $51.87

10

11 Valuation-Multiples

12 Michael Kors Catalyst Quick Expansion Risk impairment of brand image limited operating experience restrictive covenants in their credit agreement

13 Target: Business General Merchandise 2 Major Segments: Retail Sales (98% of Revenue) Credit Cards (2% of Revenue) Expansion in Canada Current Price: $69.46

14 Target: Holding Current Weight: 2.72% Desired Weight: 0% Target Price: $ DCF value: $ Multiples value: $ 65.96

15 Target: DCF Target TGT Analyst: Shengyu Cao Terminal Discount Rate = 10.00% Date: 2013/2/19 Terminal FCF Growth = 4.0% TERMINAL Year 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Revenue 71,371 73,274 75,602 78,626 82,558 86,686 90,586 94,663 98, , ,509 % Grow th 2.7% 3.2% 4.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5% 4.0% Operating Income 5,484 5,599 5,835 6,133 6,440 6,761 7,066 7,384 7,716 8,063 8,386 Operating Margin 7.7% 7.6% 7.7% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% 7.8% Interest and Other (842) (872) (907) (944) (991) (1,040) (1,087) (1,136) (1,187) (1,240) (1,290) Interest % of Sales -1.2% -1.2% -1.2% -1.2% -1.2% -1.2% -1.2% -1.2% -1.2% -1.2% Taxes 1,704 1,735 1,808 1,904 2,000 2,100 2,194 2,293 2,396 2,504 2,604 Tax Rate 36.7% 36.7% 36.7% 36.7% 36.7% 36.7% 36.7% 36.7% 36.7% 36.7% 36.7% Net Income 2,938 2,992 3,119 3,285 3,449 3,622 3,785 3,955 4,133 4,319 4,492 % Grow th 1.8% 4.3% 5.3% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5% 4.0% Add Depreciation/Amort 2,141 2,235 2,344 2,595 2,890 3,207 3,805 4,449 5,144 5,892 6,730 % of Sales 3.00% 3.05% 3.10% 3.30% 3.50% 3.70% 4.20% 4.70% 5.20% 5.70% 6.26% Plus/(minus) Changes WC % of Sales -0.6% -0.5% -0.5% -0.4% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% -0.4% Subtract Cap Ex 4,482 4,616 4,778 4,922 5,168 5,427 5,671 5,926 6,193 6,471 6,730 Capex % of sales 6.28% 6.30% 6.32% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% Free Cash Flow 1,003 1,061 1,120 1,419 1,548 1,748 2,179 2,611 3,078 3,581 4,187 % Grow th 5.8% 5.6% 26.7% 9.1% 12.9% 24.6% 19.8% 17.9% 16.4% 16.9% NPV of Cash Flows 12,238 30% NPV of terminal value 27,984 70% Terminal Value 72,583 Projected Equity Value 40, % Free Cash Flow Yield 2.22% Free Cash Yield 5.77% Current P/E Terminal P/E Projected P/E Current EV/EBITDA Terminal EV/EBITDA 5.7 Projected EV/EBITDA Shares Outstanding 649 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF -10.8%

16 Target: Multiples Absolute Valuation High Low Median Current Target Multiple Target E, S, B, etc/share Target Price P/Forward E P/S P/B P/EBITDA P/CF Target Price 65.96

17 Target Catalyst Canada Expansion Recovering economy and disposable income Growth of credit card business Risk Price competition Price matching policy Online shopping

18 STOCKS TO HOLD OR REBALANCE

19 Starbucks: Business The premier roaster and retailer of specialty coffee in the world. 1 Major Segment: Company Operated Retail 2 Minor Segments: Specialty Operations Licensing

20 Starbucks: Holding Current Weight: 1.48% Desired Weight: 1.5% Target Price: $61.56 Current Price: $56.89 Upside: 8.2%

21 Starbucks DCF

22 Multiples Valuation Absolute Valuation High Low Median Current Target Multiple E,S,B P/Forward E P/S P/B P/EBITDA P/CF Price: $60.74

23 Starbucks Catalyst Strong American Segments China & Japan K-Cup Sales Risk Weak performance in Middle East, Africa and Europe Teavana-Asia

24 Ford: Business One of the world s largest producers of cars and trucks. Ford and it s subsidiaries also engage in other businesses, including financing vehicles. 1 Major Segment: Automotive manufacturer 1 Minor Segment: Financial Services

25 Ford: Holding Current Weight: 3.00% Desired Weight: 2.5% Target Price: $14.84 DCF: $14.84 Multiples: $14.74 Current Price: $13.00 Upside: 14.1%

26 Ford DCF Ford (F) Analyst: Nolan Cox Terminal Discount Rate = 11.0% Date: 2/18/2012 Terminal FCF Growth = 3.0% TERMINAL Year 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Revenue 132, , , , , , , , , , ,070 % Grow th 6.0% 6.0% 4.8% 4.4% 4.0% 3.8% 3.6% 3.4% 3.2% 3.0% Operating Income 11,338 12,529 13,613 14,031 14,649 15,235 15,813 16,383 16,940 17,482 18,006 Operating Margin 8.6% 8.9% 9.2% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Interest and Other (6,926) (8,133) (9,112) (4,209) (4,395) (4,570) (4,744) (4,915) (5,082) (5,245) (5,402) Interest % of Sales -5.2% -5.8% -6.1% -2.7% -2.7% -2.7% -2.7% -2.7% -2.7% -2.7% -2.7% Taxes 1,106 1,102 1,129 2,455 2,564 2,666 2,767 2,867 2,964 3,059 3,151 Tax Rate 25.1% 25.1% 25.1% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Net Income 3,306 3,294 3,373 7,366 7,691 7,998 8,302 8,601 8,893 9,178 9,453 % Grow th -0.4% 2.4% 118.4% 4.4% 4.0% 3.8% 3.6% 3.4% 3.2% 3.0% Add Depreciation/Amort 5,384 6,191 6,811 6,236 6,510 6,771 7,028 7,281 7,529 7,770 8,003 % of Sales 4.1% 4.4% 4.6% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Plus/(minus) Changes WC (6,492) (6,006) (6,366) (5,612) (5,371) (5,078) (5,008) (4,915) (4,800) (4,662) (4,502) % of Sales -4.9% -4.3% -4.3% -3.6% -3.3% -3.0% -2.9% -2.7% -2.6% -2.4% -2.3% Subtract Cap Ex 5,164 5,614 5,950 6,236 6,510 6,771 7,028 7,281 7,529 7,770 8,003 Capex % of sales 3.9% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Free Cash Flow ,931 5,360 5,795 6,129 6,469 6,811 7,155 7,500 % Grow th 60.4% 4.8% 401.2% 8.7% 8.1% 5.8% 5.5% 5.3% 5.1% 4.8% Shares Outstanding 4,112 Terminal Value 96,566 Current Price $ Free Cash Yield 7.77% Implied equity value/share $ Upside/(Downside) to DCF 14.1% Terminal P/E 10.2 Debt 100,970 Terminal EV/EBITDA 6.7 Cash 24,100 Cash/share 5.86 Total Assets 178,348 Debt/Assets 56.6% Working Capital % of Growth -75%

27 Ford Multiples Absolute Valuation High Low Median Current Target Multiple A. B. C. D. E. F. P/Forward E P/S P/B P/EBITDA P/CF Target Price $14.74

28 Ford Catalyst Chinese Expansion Record Highs in February Strong American Automotive Recovery Risk European Losses and future EU risk Ceiling effect of all time highs. Weak Sector compared to others.

29 DirecTV: Business Digital entertainment 2 Major Segments: DirecTV US (78%) DirecTV Latin America (21%) Small regional sports network Current Price: $ Week: $ $57.64

30 DirecTV: Holding Current Weight: 2.8% Desired Weight: 3.5% Target Price: $66 DCF Value: $65 Multiples Value: $67 Upside: 16.3%

31 DirecTV: DCF Analyst: Trey Morrish Terminal Discount Rate = 10.00% Date: 2/14/2013 Terminal FCF Growth = 2.5% TERMINAL Year 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenue 32,076 35,308 37,753 40,774 43,628 46,682 49,483 51,957 54,035 55,656 57,047 % Growth 10.1% 6.9% 8.0% 7.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.5% Operating Income 5,400 5,609 5,858 6,116 6,544 7,002 6,928 7,274 7,565 7,235 7,416 Operating Margin 16.8% 15.9% 15.5% 15.0% 15.0% 15.0% 14.0% 14.0% 14.0% 13.0% 13.0% Interest and Other (710) (764) (798) (862) (922) (987) (1,046) (1,098) (1,142) (1,176) (1,206) Interest % of Sales -2.2% -2.2% -2.1% -2.1% -2.1% -2.1% -2.1% -2.1% -2.1% -2.1% -2.1% Taxes 1,631 1,696 1,771 1,839 1,968 2,105 2,059 2,162 2,248 2,121 2,174 Tax Rate 33.0% 36.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Non-controlling Interest Percent of Sales 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Net Income 2,869 3,116 3,254 3,377 3,613 3,866 3,777 3,965 4,124 3,886 3,983 % Growth 8.6% 4.4% 3.8% 7.0% 7.0% -2.3% 5.0% 4.0% -5.8% 2.5% Add Depreciation/Amort 2,726 3,089 3,398 3,670 4,145 4,435 4,701 5,196 5,403 5,566 5,705 % of Sales 8.5% 8.8% 9.0% 9.0% 9.5% 9.5% 9.5% 10.0% 10.0% 10.0% 10.0% Plus/(minus) Changes WC (3,450) (195) (148) (182) (170) (182) (166) (145) (120) (93) (80) % of Sales -10.8% -0.6% -0.4% -0.4% -0.4% -0.4% -0.3% -0.3% -0.2% -0.2% -0.1% Subtract Cap Ex 3,776 4,156 4,444 4,485 4,581 4,902 5,196 5,196 5,403 5,566 5,705 Capex % of sales 11.8% 11.8% 11.8% 11.0% 10.5% 10.5% 10.5% 10.0% 10.0% 10.0% 10.0% Free Cash Flow 2,128 2,908 3,057 3,213 3,513 3,759 3,668 3,942 4,104 3,871 3,970 % Growth 36.6% 5.1% 5.1% 9.4% 7.0% -2.4% 7.5% 4.1% -5.7% 2.6% Current Price $ Terminal Value 54,257 Implied equity value/share $ Free Cash Yield 7.32% Upside/(Downside) to DCF 14.9% Terminal P/E 13.6 Terminal EV/EBITDA 5.3

32 DirecTV: Multiples High Low Median Current Target Multiple P/Forward E P/S P/B N/A N/A P/EBITDA P/CF Target Value: $67

33 DirecTV LA Growth Catalyst Increase in US margins as programming costs increase Sustainable high ARPU and constant churn Risk Loss of NFL Sunday Ticket Monopoly Currency devaluations

34 NEW HOLDINGS

35 Comcast: Business Cable and Broadband provider across US 2 Major Segments: Cable Broadcasting (TV/Phone/Internet) NBC Universal (Programming, Theme Parks, Film) Current Price: $ Week: $ $42.01

36 Comcast: Overview 2012 CMCSA DTV DISH TWC Comcast 2013 (Proj) EPS $2.28 $4.58 $1.41 $6.9 $2.61* Sales $62.57 B $14.27 B $21.39 B $67 B* Return on Equity Profit Margin 12.06% N/A N/A 29.14% N/A 9.91% 9.91% 4.46% 10.09% 10.19% *EPS is 5% above consensus, Revenue 4% above consensus

37 Comcast: Holding Current Weight: 0.0% Desired Weight: 1.5% Current Price: $42 Target Price: $50.50 DCF Value: $50 Multiples Value: $51 Upside: 13.1 %

38 Comcast: DCF Analyst: Trey Morrish Terminal Discount Rate = 10.00% Date: 3/29/2013 Terminal FCF Growth = 4.0% TERMINAL Year 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenue 67,335 73,136 79,649 87,614 95, , , , , , ,853 % Growth 8.6% 8.9% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 4.0% Operating Income 15,318 17,030 18,830 20,151 21,965 23,722 24,279 25,736 27,023 26,826 27,899 Operating Margin 22.7% 23.3% 23.6% 23.0% 23.0% 23.0% 22.0% 22.0% 22.0% 21.0% 21.0% Interest and Other (2,491) (2,852) (3,266) (3,592) (3,915) (4,229) (4,525) (4,796) (5,036) (5,237) (5,447) Interest % of Sales -3.7% -3.9% -4.1% -4.1% -4.1% -4.1% -4.1% -4.1% -4.1% -4.1% -4.1% Taxes 4,617 5,193 5,856 6,292 6,859 7,407 7,507 7,957 8,355 8,204 8,532 Tax Rate 36.0% 37.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Non-controlling Interest 1,347 1,463 1,593 1,752 1,910 2,063 2,207 2,340 2,457 2,555 2,657 Percent of Sales 2.7% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Net Income 6,862 7,380 7,961 8,514 9,281 10,023 10,040 10,643 11,175 10,830 11,263 % Growth 7.5% 7.9% 6.9% 9.0% 8.0% 0.2% 6.0% 5.0% -3.1% 4.0% Add Depreciation/Amort 10,100 10,239 10,354 7,885 9,072 9,798 10,484 11,698 12,283 12,774 13,285 % of Sales 15.0% 14.0% 13.0% 9.0% 9.5% 9.5% 9.5% 10.0% 10.0% 10.0% 10.0% Plus/(minus) Changes WC (140) (29) (33) (124) (121) (116) (109) (99) (87) (72) (75) % of Sales -0.2% 0.0% 0.0% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% Subtract Cap Ex 7,407 8,776 10,354 9,638 10,027 10,830 11,588 11,698 12,283 12,774 13,285 Capex % of sales 11.0% 12.0% 13.0% 11.0% 10.5% 10.5% 10.5% 10.0% 10.0% 10.0% 10.0% Free Cash Flow 8,828 8,484 7,936 7,070 8,452 9,139 9,107 10,567 11,108 10,775 11,205 % Growth -3.9% -6.5% -10.9% 19.5% 8.1% -0.4% 16.0% 5.1% -3.0% 4.0% Current Price $ Terminal Value 194,228 Implied equity value/share $ Free Cash Yield 5.77% Upside/(Downside) to DCF 19.3% Terminal P/E 17.2 Terminal EV/EBITDA 5.3

39 Comcast: Multiples High Low Median Current Target Multiple P/Forward E P/S P/B P/EBITDA P/CF Target Value: $51

40 Comcast Catalyst Scaling Removal of all NBC programming costs Increased Subscribers NBC raises prices, keeps retention Risk Competition (DTV, DISH, TWC, COX) Programming costs excluding NBC Regulation of NBC

41 Dollar General: Business General Merchandise Discount retail Most retail locations in US Current Price: $50.58

42 Dollar General: Holding Current Weight: 0% Desired Weight: 2.2% Target Price: $ DCF value: $ Multiples value: $ Upside: 12.08%

43 Dollar General TGT DG DLTR FDO EPS Sales per Share ROE 18.52% 19.72% 41.12% 33.77% Profit Margin 4.09% 5.95% 8.38% 4.40%

44 Dollar General: DCF DG Analyst: Shengyu Cao Terminal Discount Rate = 10.00% Date: 2013/3/28 Terminal FCF Growth = 4.0% TERMINAL Year 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Revenue 14,516 16,060 17,666 19,256 20,990 22,669 24,255 25,953 27,511 28,886 30,042 % Grow th 10.6% 10.0% 9.0% 9.0% 8.0% 7.0% 7.0% 6.0% 5.0% 4.0% Operating Income 1,455 1,526 1,643 1,791 1,952 2,040 2,183 2,336 2,476 2,600 2,704 Operating Margin 10.0% 9.5% 9.3% 9.3% 9.3% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Interest and Other (218) (161) (177) (193) (210) (227) (243) (260) (275) (289) (300) Interest % of Sales -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% Taxes Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Net Income , ,059 1,099 1,176 1,259 1,334 1,401 1,457 % Grow th 22.6% 16.5% -6.0% 9.0% 3.8% 7.0% 7.0% 6.0% 5.0% 4.0% Add Depreciation/Amort ,073 1,155 1,202 % of Sales 2.20% 2.50% 2.70% 3.00% 3.00% 3.30% 3.50% 3.70% 3.90% 4.00% 4.00% Plus/(minus) Changes WC % of Sales 1.0% -2.2% -0.4% -1.1% -1.1% -1.0% -0.8% -0.8% -0.7% -0.6% -0.5% Subtract Cap Ex ,202 Capex % of sales 1.00% 0.80% 0.60% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 4.0% Free Cash Flow ,257 1,101 1,200 1,321 1,470 1,611 1,772 1,907 1,352 % Grow th -13.5% 51.6% -12.4% 9.0% 10.1% 11.3% 9.6% 10.0% 7.6% -29.1% NPV of Cash Flows 8,072 47% NPV of terminal value 9,032 53% Terminal Value 23,427 Projected Equity Value 17, % Free Cash Flow Yield 6.19% Free Cash Yield 5.77% Current P/E Terminal P/E Projected P/E Current EV/EBITDA Terminal EV/EBITDA 6.6 Projected EV/EBITDA Shares Outstanding 306 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 10.6%

45 Dollar General: Multiples Absolute Valuation High Low Median Current Target Multiple Target E, S, B, etc/share Target Price P/Forward E P/S P/B P/EBITDA P/CF Target Price 57.22

46 Dollar General Catalyst Same-Store Sales Increased 4.7% last year Expansion plan of 635 new stores and 550 relocations in 2013 Increases Share Repurchase by $500 Million Risk High Net Debt/Equity ratio Leverage Ratio FDO DLTR DG Limits on operating margin upside

47 Review New Holdings F: 2.5% DTV: 3.5% CMCSA: 1.5% DG: 2.2% SBUX: 1.5% Former Holdings F: 3.0% DTV: 2.8% TGT: 2.7% KORS: 2.3% SBUX: 1.5% Projected Return: 13.5%