Information Technology

Size: px

Start display at page:

Download "Information Technology"

Karin Butler
5 years ago
Views:

1 Information Technology gy Stock Presentation By: Lauren Irwin David Klink Zach Kramer Steve Meecham Jie Meng

2 Agenda IT Sector Overview Stock Discussion Apple pp Inc Corning Inc Google Hewlett Packard Co Intel Corp MasterCard Recommendations

3 SIM Portfolio

4 IT Sector Recommendation S&P 5500 Weight g SIM Weight g Weight g Current 18.74% 22.54% 3.79% Recommendation d 18.74% 23.25% 4.50% Increase IT weight by 71 BPS

5 Information Technology Stocks Recommendation Company Current SIM Weight Decision Apple Inc 5.51% Sell 125 BPS Corning Inc 3.22% 3 22% HOLD Google 3.12% Buy 40 BPS Hewlett Packard Co 3.59% HOLD p Intel C Corp 33.40% 4 % O HOLD MasterCard 3.71% HOLD Total 22.55% Decrease overall IT portfolio by 85 BPS

6 Apple Inc Apple, Inc. AAPL Current Price : $ week range: $ $ Target a get Price ce (DCF) ( C ) : $ ( ( 28.1%) 8. %) Analyst 1 year Target : $ ( 32.3%)

7 Apple Inc Apple, Inc. AAPL Drivers Strong sales in iphone and ipad segments 66% of mobile phone profits Risks ipad supply concerns Pending litigation HTC, HTC S Samsung, A Amazon, retail il stores

8 Apple Inc Apple, Inc. AAPL Absolute Valuation High Low Median Current A. P/Forward E P/S P/B P/EBITDA P/CF B C D E Average : $ #Your Target Multiple F *Your Target E, S, B, etc/share G Your Target Price (F x G) H

9 Apple Inc Apple, Inc. AAPL Current SIM Weight g : 55.51% 5 July s 2nd highest performer 16.33% return Recommended eco e ded Weight e g t : 4.26% 4. 6% Recommendation : Sell 125 bps

10 Corning Inc GLW Performance M h to Date Month D Quarter to Date Year to Date

Corning Inc GLW Stock Price History Valuation Metrics Market Cap (intraday)5: 21.85B Beta: 1.43 52 Week Change3: 24.61% S&P500 52 Week Change3: 6.60% 0.67 52 Week 52 Week High (Feb 4, 2011)3: 23.

11 Corning Inc GLW Stock Price History Valuation Metrics Market Cap (intraday)5: 21.85B Beta: Week Change3: 24.61% S&P Week Change3: 6.60% Week 52 Week High (Feb 4, 2011)3: Price/Sales (ttm): Price/Book (mrq): Week Low (Aug 4, 2011)3: Enterprise Value/Revenue (ttm)3: Day Moving Average3: Enterprise Value/EBITDA (tt )3: (ttm) Day Moving A Average3: Enterprise Value (Aug 5, 2011)3: T ili P/E (ttm, Trailing (tt intraday): Forward P/E (fye Dec 31, 2012)1: PEG Ratio (5 yr expected)1: 18.68B

12 Corning Inc GLW Segment Statistics Segment Sales Earnings Profit Margin Display Technologies % % 99.3% Telecommunications % % 5.7% E i Environmental l % % % 6% 5.1% % Specialty Material % (27).87% 4.7% Life Sciences % % 11.8% Other 7.11% (75) 2.43% % Total % %

13 Corning Inc GLW Business Analysis Because of advanced technical abilities and patented technology, technology its has grown to achieve a 60% market share of the LCD glass market Its flagship offering is Gorilla Glass an environmentally friendly alkali aluminosilicate thin sheet g glass that is extremelyy durable Its telecommunications is expected to benefit from renewed telecom spending for high bandwidth FTTP networks Recently introduced two new diesel engine filters which should benefit from more stringent emission regulations Unveiled new drug detection system to help pharmaceutical companies to identify effective drugs Main Business Drivers: LCD display demand FTTP networks Emission Regulation

14 Corning Inc GLW Source: ycharts.com

15 Corning Inc GLW Multiples p valuation Absolute Valuation High A. Low B. Median C. Current D. #Your Target Multiple utpe E. F. *Your Target E, S, B,, etc/share G. Your Target Price ((F x G) H. P/Forward E P/S P/B P/EBITDA P/CF

16 Corning Inc GLW Target Price Weight Multiple Evaluation % DCF Evaluation % Weighted W i ht d Average A Target T tp Price: i $24.88 $ 88 Current Price:$14.5 Upside: 70% Recommendation: Hold

17 Hewlett Packard HPQ Hewlett Packard HPQ Q is a member of the Diversified Computer p Systems industry Provides products, technologies, software, solutions, and services Provides to individual consumers, small and medium sized businesses, large enterprises Very large, entrenched firm serving technology needs d off all ll types off customers

18 Hewlett Packard HPQ Hewlett Packard Divided into 7 Operating p g Segments: g Services Enterprise Storage and Servers HP Software Personal Systems Group Imaging and Printing Group HP Financial Services Corporate C Investments

19 HPQ Price Performance 12 Month Price Performance Adjusted Closing Price

20 Hewlett Packard HPQ Hewlett Packard Y/Y Performance has been poor p YTD Performance has been even worse Reasons: easo s: CEO Turnover Poor g guidance on conference calls Stock has gapped lower over last 2 quarters after the earnings announcement, and then drifted around that area

21 Hewlett Packard HPQ Hewlett Packard Year over Year Revenue Growth Projections Services 0.25% % 0.50% 5 ESS 18.15% 10.00% 7.00% HP Software 9 36% 9.36% 9 00% 9.00% 9 00% 9.00% PSG 2.20% 1.00% 0.00% IPG 7.07% 3.00% 2.00% HPFS 18.06% 15.00% 15.00% Corp. Investments 63.56% 10.00% 10.00%

22 Hewlett Packard HPQ Hewlett Packard Fiscal Year Revenue Projections Services 35,282 35,282 35,459 ESS 23,374 25,712 27, , , ,822 PSG 39,839 39,440 39,440 IPG 27,587 28,414 28,983 3,597 4,137 4, 37 4,758 4, HP Software HPFS Corp. Investments

23 Hewlett Packard HPQ Hewlett Packard Segment Operating Margin Projections Services 14 58% 14.58% 13 50% 13.50% 13 50% 13.50% ESS 12.79% 13.00% 13.00% HP Software 21.84% 20.00% 20.00% PSG 5.49% 4.90% 4.90% IPG 17.30% 17.00% 17.00% 9.11% % 9.00% % 9.00% % % 4.00% 4.00% HPFS Corp. Investments

24 Hewlett Packard HPQ Hewlett Packard Operating Earnings Projections Services 5, , , ESS 2,989 3,343 3, PSG 2,186, 1,933,933 1,933,933 IPG 4,775 4,836 4, (375) HP Software HPFS Corp. Investments

25 Hewlett Packard HPQ Hewlett Packard Projected Target Price Projected Price: $66.84 Projected j Upside: p 121%

26 Hewlett Packard HPQ Hewlett Packard Current Valuation Metrics P/E = 8.02 Industry y Average g = P/B = 1.67 Price/Sales / = PEG Ratio = 0.70

27 Hewlett Packard HPQ Hewlett Packard HPQ Q Guidance Focused on positioning themselves better for the future Main area of investment is in Services Trying to better align their Services toward higher margin offerings Won t be immune from Japanese earthquake Are trying to reduce d impacts as much h as possible bl Regaining lost market share in Asia, after other competitors tit h have entered t d this thi space

28 Hewlett Packard HPQ Hewlett Packard HPQ Q Recommendation Maintain the same weighting as currently held Facing ac g so somee headwinds, ead ds, as well e as internal te a positioning for a profitable future Solid stock to maintain

29 Google GOOG Market Cap:186.96B Current Price: week rage: ROE:19.47% Beta:0.88

30 Google GOOG Drivers: Trusted, highly recognized brand Rapid change and converging Global Operations and Geographic Data Seasonality: Internet usage generally slows during the summer months, and commercial queries typically increase significantly in the fourth quarter of each year. year Risks: Intense competition p Generate revenue based on advertising; 96%. Cutting expense or losing advertiser would harm a lot

31 Google GOOG

32 Google GOOG

33 Intel Corporation (INTC) Market Cap: p billion Current price: week ee range:17.60 a ge: ROE: 25.91%

34 Intel Corporation (INTC) Drivers Remarkable strong business with high market share of the microprocessor business worldwide, 70% Invest many times more than their competitors in R &D, new products and low cost production facilities Like new chips they developed enhance speed and reduce power consumption Intel is the leading player in sever market. Large companies like the Amazon, the Netflix's and the Google still build server farms to store and deliver their data to customers and business

35 Intel Corporation (INTC) Risk Basically Information and Technology sector is very fickle due to the changeable customer demand, market k acceptance and d competitors i actions i PC business is slowing down: Excess capacity; low demand; slow upgrade cycle The threaten of smartphones and tablets

36 Intel Corporation (INTC) Segments (million) PC Client Group Sales % Earnings % Profit Margin 31, % 13, % 42.10% Data Center 8,693 Group 19.93% 4, % 50.56% Other Intel Oth I t l 1,784 8 Architectur e Operating Segments g 4.09% % (6 ) (60) 0.38% 8% 3.36% 6% Software and Service Group 1, % (2,051) 13.16% % Total 43, % 15, %

37 Intel Corporation (INTC) ROE

38 Intel Corporation (INTC) Earnings g per p share

39 Intel Corporation (INTC) Relative to Industryy 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 High Low Median Current High Low Median Current

40 Intel Corporation (INTC) Absolute Valuation High Low Median A. P/Forward E P/S P/B P/EBITDA P/CF B C D Current E Target Price Weight Multiple Evaluation % DCF Evaluation E l i % 60% #Your Target Multiple F Weighted Average Target Price: $26 C Current t Price:$20.79 Pi $ Upside:25% *Your Target E, S, B, etc/share G Your Target Price (F x G) H

41 MasterCard (MA) Market Cap: p billion 49 Current price: $ week ee rage: age: ROE: 42.47%

42 MasterCard (MA) Drivers International Transactions accounted for 60% of Revenue, will only continue to grow Consumer spending rose 2.5% in the second quarter, despite the economy ISIS mobile payment platform MA is now a partner Google wallet competitor to ISIS MA is a founding partner (Visa p ( is not))

43 MasterCard (MA) Risks US Government Federal Reserve almost eliminated debit card transaction fees Foreign F i Governments G many governments will ill dislike di lik of populace becomes burdened with credit card debt

44 MasterCard (MA) ROE

45 MasterCard (MA) Relative to Industry 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 High Low Median Current High Low Median Current

46 MasterCard (MA) Absolute Valuation High Low Median Current #Your Target Multiple i A. P/Forward E P/S P/B P/EBITDA P/CF B C D E F *Your Target E, S, S B, etc/share $ G Target Price Weight Multiple Evaluation $ % DCF Evaluation $ % Weighted Average Target Price: $ C Current Price:$ Pi 6 Upside:21.4% Recommendation: Hold Your Target Price i (F x G) H. $ $ $ $ $328.25

47 Information Technology Stocks Recommendation Company Current SIM Weight Decision Apple Inc 5.51% Sell 125 BPS Corning Inc 3.22% 3 22% HOLD Google 3.12% Buy 40 BPS Hewlett Packard Co 3.59% HOLD p Intel C Corp 33.40% 4 % O HOLD MasterCard 3.71% HOLD Total 22.55% Decrease overall IT portfolio by 85 BPS

48 Information Technology Stocks Recommendation Hewlett Packard and Corning g Inc are past p their downturn and are poised for a rebound Google has the least amount of weight in the SIM portfolio Apple must be sold because it has too much weight in the SIM portfolio MasterCard looks promising but we feel Google is a better b stock k for f the h 40 BPS

49 Appendices Apple DCF Apple (AAPL) Analyst: Zak Kramer Terminal Discount Rate = 11.25% Date: 7/7/2011 Terminal FCF Growth = 4.75% Year 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Revenue 103, , , , , , , , , , ,618 % Grow th 23.8% 14.7% 9.1% 7.7% 6.5% 6.1% 5.4% 5.1% 4.9% 4.75% Operating Income 29,512 36,924 43,962 48,122 53,037 54,093 55,050 55,965 56,440 58,072 59,405 Operating Margin 28.5% 28.8% 29.9% 30.0% 30.7% 29.4% 28.2% 27.2% 26.1% 25.6% 25.0% Interest, net Interest % of Sales 0.40% 0.35% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% Other Expenses (207.10) (192.31) (220.54) (240.61) (259.14) (275.98) (292.82) (308.63) (324.37) (340.26) (356.43) % of Sales -0.20% -0.15% -0.15% -0.15% -0.15% -0.15% -0.15% -0.15% -0.15% -0.15% -0.15% Taxes 7,133 8,923 10,593 11,653 12,841 13,101 13,338 13,565 13,686 14,084 14,411 Tax Rate 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% Net Income 22,586 28,257 33,545 36,662 40,404 41,212 41,946 42,647 43,014 44,260 45,279 % Grow th 25.1% 18.7% 9.3% 10.2% 2.0% 1.8% 1.7% 0.9% 2.9% 2.30% Add Depreciation/Amort 1,657 1,923 2,058 2,246 2,246 2,392 2,440 2,469 2,379 2,495 2,614 % of Sales 1.6% 1.5% 1.4% 1.4% 1.3% 1.3% 1.3% 1.2% 1.1% 1.1% 1.1% Plus/(minus) Changes WC 3,141 (5) (1,532) (1,764) (1,900) (2,024) (1,952) (2,058) (2,162) (2,268) (2,376) % of Sales 3.0% 0.0% -1.0% -1.1% -1.1% -1.1% -1.0% -1.0% -1.0% -1.0% -1.0% Subtract Cap Ex 3,624 3,590 3,823 3,529 3,455 3,128 2,733 2,469 2,379 2,495 2,614 Capex % of sales 3.5% 2.8% 2.6% 2.2% 2.0% 1.7% 1.4% 1.2% 1.1% 1.1% 1.1% Free Cash Flow 23,662 26,724 30,521 33,867 37,552 38,681 39,887 40,760 41,031 42,180 43,099 % Grow th 12.9% 14.2% 11.0% 10.9% 3.0% 3.1% 2.2% 0.7% 2.8% 2.2% NPV of Cash Flows 209,344 47% NPV of terminal value 239,173 53% Terminal Value 694,565 Projected Equity Value 448, % Free Cash Flow Yield 6.76% Free Cash Yield 6.21% Current P/E Terminal P/E 15.3 Projected P/E Current EV/EBITDA Terminal EV/EBITDA 11.1 Projected EV/EBITDA Shares Outstanding 937 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 28.1%

50 Appendices Corning Inc DCF

51 Appendices Hewlett Packard DCF

52 Appendices Intel Corporation DCF

53 Appendices MasterCard DCF MasterCard (MA) Analyst: Steve Meechan Terminal Discount Rate = 11.0% Date: 8/8/2011 Terminal FCF Growth = 4.0% Year 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Revenue 6,647 7,444 8,338 9,213 10,135 11,047 11,986 12,944 13,721 14,270 14,841 % Grow th 12.0% 11.5% 10.5% 10.0% 9.0% 8.5% 8.0% 6.0% 4.0% 4.0% Operating Income 3,609 4,191 5,003 5,528 5,675 6,186 6,712 7,249 7,684 7,991 8,311 Operating Margin 54.3% 56.3% 60.0% 60.0% 56.0% 56.0% 56.0% 56.0% 56.0% 56.0% 56.0% Interest and Other Interest % of Sales 0.0% 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Taxes 1,205 1,400 1,673 1,881 1,931 2,105 2,284 2,467 2,615 2,719 2,828 Tax Rate 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% Net Income 2,338 2,717 3,247 3,651 3,749 4,086 4,434 4,789 5,076 5,279 5,490 % Grow th 16.2% 19.5% 12.5% 2.7% 9.0% 8.5% 8.0% 6.0% 4.0% 4.0% Add Depreciation/Amort % of Sales 2.6% 2.5% 2.9% 3.1% 2.9% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% Plus/(minus) Changes WC (21) (48) (54) (29) (30) (30) (31) (31) (25) (17) (18) % of Sales -0.3% -0.6% -0.6% -0.3% -0.3% -0.3% -0.3% -0.2% -0.2% -0.1% -0.1% Subtract Cap Ex Capex % of sales 2.7% 2.7% 3.1% 2.9% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% Free Cash Flow 2,308 2,654 3,174 3,641 3,729 4,057 4,403 4,757 5,051 5,262 5,472 % Grow th 15.0% 19.6% 14.7% 2.4% 8.8% 8.5% 8.0% 6.2% 4.2% 4.0% NPV of Cash Flows 23,315 45% NPV of terminal value 28,633 55% Terminal Value 81,302 Projected Equity Value 51, % Free Cash Flow Yield 5.40% Free Cash Yield 6.73% Current P/E Terminal P/E 14.8 Projected P/E Current EV/EBITDA Terminal EV/EBITDA 8.9 Projected EV/EBITDA Shares Outstanding 131 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 21.4%

Information Technology Stock Presentation. Yijun Ge, Bret Rosenthal, Yang Shen, Chengqiao Sun, Greg Van Wagnen, Ying Zhong

Information Technology Stock Presentation Yijun Ge, Bret Rosenthal, Yang Shen, Chengqiao Sun, Greg Van Wagnen, Ying Zhong Information Technology Sector Review Recommendations Google (GOOG) Intel (INTC)