CONSUMER DISCRETIONARY. Mike Anderson & Bingqian Lu

Transcription

1 CONSUMER DISCRETIONARY Mike Anderson & Bingqian Lu

2 AGENDA Recommendations Industry Recap Analysis of Stocks Conclusion

3 RECOMMENDATIONS Current Sector Weight: Current SIM Weight: Recommendation: Slightly Underweight*

4 Sector Stock Recommendations Company Ticker Current Basis Proposed Basis Current Price Target Price Upside (Downside) Recommend Comcast CMCSA % HOLD Direct TV DTV % SELL Harley Davidson HOG % BUY Michael Kors KORS % BUY Service Corporation Intl SCI % HOLD TOTAL: UNDERWEIGHT

5 Industry Recap Size: T Status: Cyclical Categories: retailers, media companies, consumer services companies, consumer durables and apparel companies, and automobiles and components companies

6 Performance Securities Price Change Total Return Difference Con Dis % % 55.12% SPX 64.94% 99.33%

7 ANALYSIS KORS HOG DTV

8 Michael Kors Company Overview Stock Overview Competitive Advantage Investment thesis Valuation Risks & Concerns Recommendation

9 Company Overview Michael Kors sells watches, jewels, handbags, apparels and etc by distinguishing itself as a global luxury lifestyle brand. Founder: Michael Kors Founded in 1981 North America, Europe, Asia Two Collections: Michael Kors & Michael Michael kors

10 Stock Overview 12 month stock price /7/1 2014/11/1 2015/3/1 2015/7 Market Cap: $8.55B Shares Outstanding: 200M Dividend Yield: 0% 52 Weeks Low: $ Weeks High: $91.79 Profit Margin: 23.70% EPS: $4.28 Target Price: $58.01

11 Competitive Advantage Sales strategies: partnership & shop-in-shops international expansion & e-commerce Marketing Strategies: brand awareness & selection price advantage

12 Investment Thesis Current economic condition-unfavorable Gucci, Prada, Burberry continuously marked down their inventories, which forced the operating margin of entrylevel luxury products down.

13 Financial Analysis Strong new store growth & above average same store sales

14 Financial Analysis Most efficient profit generator, sales per square feet and operating margin are the highest among its competitors

15 Financial Analysis Stable on DIO growth, 8% growth from 2011 to 2015

16 Valuation Target Price: Avg: $67.99 Heavily rely on sale revenue Avg estimate is high

17 Discount Rate Sensitivity Analysis Terminal Growth Rate 3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 5.00% 10.00% $61.75 $63.29 $64.95 $66.75 $68.69 $70.81 $73.11 $75.64 $ % $59.37 $60.79 $62.30 $63.93 $65.70 $67.61 $69.68 $71.95 $ % $57.16 $58.46 $59.84 $61.33 $62.93 $64.67 $66.54 $68.58 $ % $55.10 $56.29 $57.56 $58.92 $60.38 $61.95 $63.65 $65.50 $ % $53.17 $54.26 $55.43 $56.67 $58.01 $59.45 $60.99 $62.66 $ % $51.35 $52.36 $53.44 $54.58 $55.81 $57.12 $58.53 $60.05 $ % $49.65 $50.58 $51.57 $52.63 $53.75 $54.96 $56.25 $57.63 $ % $48.05 $48.91 $49.83 $50.80 $51.84 $52.94 $54.12 $55.39 $ % $46.53 $47.33 $48.18 $49.08 $50.04 $51.06 $52.14 $53.31 $54.55

18 Risks & Concerns Foreign exchange risk -dollar appreciate, all forward contract will expire at the beginning of 2016 fiscal year Strategic risk -consumer preference Expansion concern in Asia -licensing issue with Michael Kors Far East Holding Ltd

19 Recommendation Shares Outstanding 200,865 Current Price $43.47 Implied equity value/share Upside/(Downside) to DCF 33.4% Debt 0.00 Cash $978,922 Cash/share 4.87 Current Weight Recommended Weight 143bps 250bps

20 Harley Davidson Company Overview Stock Overview Investment thesis Financial Analysis Growth Strategy Valuation Risks & Concerns Recommendation

21 Company Overview Harley-Davidson, Inc. (HOG) Manufactures cruiser and touring motorcycles. The company operates in two segments, Motorcycles & Related Products and Financial Services. Harley-Davidson Motor Company The Motorcycles & Related Products segment designs, manufactures, and sells at wholesale street-legal Harley- Davidson motorcycles, as well as a line of motorcycle parts, accessories, general merchandise, and related services. Harley-Davidson Financial Services The Financial Services segment provides wholesale and retail financing, and insurance and insurance-related programs to dealers and retail customers. Founded in 1903

22 Stock Overview 12 month stock price STOCK DATA Ticker Sector Price (7/14/15) 52-week range Market Cap. (M) Shares Out. Diluted (M) Annual Dividend Dividend Yield Est P/E (2015) Est PEG (2015) Book Value / Share HOG Consumer Disc $57.67 $53- $71 $11, $ $14.11

23 Investment Thesis Harley-Davidson currently represents a BUY opportunity due to the following reasons: Loyalty to its customer base and brand despite competitors discount pricing as a result of exchange rates Growing customer base with a solid strategy for growth A stock price that appears inexpensive

24 Financial Analysis Exchange rate issues Profit margin improvements NOPAT growth Stock repurchase Future projections

25 Strategy for growth Fatten the tails Outreach customers and programs Middleweight market

26 Valuation Multiples: Industry COMPANY Mkt Cap (USD) P/E ('15) P/B P/S P/CF P/EBITDA PEG ('15) Average 29.5B HARLEY-DAVIDSON INC 11.7B POLARIS INDUSTRIES 9.8B HONDA MOTOR CO LTD 58.1B SUZUKI MOTOR CORP 18.5B YAMAHA MOTOR CO 7.7B BMW 71.2B Firm Absolute Valuation Current Target Multiple TGT/Current Expected EPS Target Price P/E P/B P/S P/EBITDA

27 Multiples HOG RATIO CURRENT AVERAGE HIGH LOW ABSOLUTE P / E P / B P / S P / EBITDA S5COND P / E P / B P / S P / EBITDA SPX P / E P / B P / S P / EBITDA

28 Valuation Multiples (cont.) Avg target price $61.80 DCF Target price: $65.08 Combined: $63.44 (equal weight) Analysts (13) Mean Target: $66

29 Risks & Concerns Continued strength of U.S. dollar Aging core demographic Potential credit market deterioration Competition from other motorcycle makers Economic stalling or contraction

30 Recommendation Shares Outstanding 208.1M Current Price $57.67 Implied equity value/share $63.44 Upside/(Downside) to DCF 10.0% Debt Cash $5.93B $8.21M Cash/share $3.95 Current Weight Recommended Weight 313bps 425bps

31 DTV Recommend: Sell Potential AT&T merger at $95 valuation Small upside (projected 1.6% return) No dividend Sunday Ticket class action suit

32 CONCLUSION Underweight sector (12.22 vice 12.80) Buy additional HOG (313bps to 425 bps) Buy additional KORS (143 bps to 250 bps) Sell DTV (258 bps to 0)

33 QUESTIONS?