INDUSTRIALS SECTOR GARRETT GANDEE, SHI TING GU, STEVEN ROEHLIG

Transcription

1 INDUSTRIALS SECTOR GARRETT GANDEE, SHI TING GU, STEVEN ROEHLIG The Ohio State University: SIM Program

2 AGENDA Overview Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recommendation

3 SIM PORTFOLIO WEIGHT December, 2011

4 INDUSTRIALS OVERVIEW Sector Size Market Cap = 1.2 Trillion Industries Air Freight & Logistics Airlines Building Products Commercial Printing Construction / Engineering Electrical Components Industrial Conglomerates Railroads Industrial & Construction Machinery Data Processing, Environmental Services Farm Machinery Industrials S&P Sectors

5 SEVEN LARGEST COMPANIES

6 RECENT PERFORMANCE Last Year Earnings Per Share Up 21% Revenues (% Change) Up 10% Last Quarter Earnings Per Share Up 20% Revenues (% Change) Up 11%

7 PAST PERFORMANCE VS. S&P 500 Very Highly Correlated - r =.98

8 INDUSTRIALS LIFE CYCLE PHASE Industrials Sector is in the Maturity Phase Performance tied to market Selling in large volumes Maximizing Profit Stable # of Competitors

9 FIVE FORCES ANALYSIS

10 KEY DRIVERS Gross Domestic Product New Product Orders Government Spending Business Capital Spending Manufacturing Capacity Utilization Oil Prices

11 New Orders Machinery orders appear to have peaked.

12 Capacity Utilization Utilization peaking; still some slack.

13 Business Capital Expenditures Businesses continue to invest as economy recovers.

14 Business Capital Expenditures Industrial spending strong as output recovers.

15 Economy Recovery still gradual; expected to pick up pace.

16 Real-GDP 10-Year Pace of recovery softens as consumption moderates.

17 Oil Prices Prices slightly higher on Middle-East instability.

18 New Orders Supported by higher oil prices

19 Nominal-GDP 10-Year Consumer spending and inventory support growth.

20 HOUSING BOTTOM?

21 Valuation Analysis Absolute Rela+ve S&P (Sector) Median Current Median Current Median Current P/Trailing E P/Forward E P/B P/S P/CF Aero/Defense Conglomerates Machinery Industry Median Current Median Current Median Current P/Trailing E P/Forward E P/B P/S P/CF

22 FINANCIAL ANALYSIS The estimated growth rate of the sector in the next few years is roughly 6%-9%. Cash flow to Earnings ratio is around 1.3. ROE for the sector is higher than the market.

23 SALES OF UTX COMPARED TO INDUSTRY The revenue of UTX is constantly growing during the past 5years, with a slightly back during the financial crisis

24 SALES OF DHR COMPARED TO INDUSTRY The revenue growth rate of DHR is much better than the performance of the industry.

25 SALES OF FLS COMPARED TO INDUSTRY With a slightly back during the financial crisis, it seems Machinery industry will gain a huge growth in revenue during the next few years.

26 Financial Analysis

27 RECOMMENDATIONS Currently -1.18% Underweight Our recommendation is to move to even weight, or slightly overweight Took into account Gina Martin Adams recommendation to increase weight in this sector Pros Future Indicators (Capacity Utilization, Oil, Employment) look good Cons General economic volatility

28 RECOMMENDATIONS WITHIN SECTOR Industry Diversified Machinery Aerospace and Defense Products and Services Industrial Electrical Equipment Farm & ConstrucKon Machinery Industrial Equipment & Components Waste Management General Building Materials Metal FabricaKon Aerospace & Defense Major Diversified Heavy ConstrucKon ResidenKal ConstrucKon Machine Tools & Accessories Small Tools & Accessories Cement General Contractors TexKle Industrial PolluKon & Treatment Controls Lumber, Wood ProducKon Manufactured Housing

29 QUESTIONS?