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

Transcription

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

2 Information Technology Sector Review Recommendations Google (GOOG) Intel (INTC) Corning (GLW) Oracle (ORCL) Apple (AAPL) Hewlett-Packard (HPQ) Conclusion All information as of May 18 th, 2012 Agenda

3 S&P Weight SIM Weight Information Technology Sector Review Source: standardandpoors.com/indices/sp-500/en/us/?indexid=spusa-500-usduf--p-us-l--

4 Remain Overweight 106 Bps Stock Target Price Current Weight Recommended Change Weight Potential Upside Unrealized Gain/Loss GOOG $ bps Hold 382 bps 12.9% $13,764 INTC $ bps Hold 388 bps 19.1% $112,748 GLW $ bps Hold 452 bps 81.9% ($93,993) ORCL $ bps Hold 186 bps 32.5% ($5,625) AAPL $ bps -79 bps 384 bps 9.9% $327,053 HPQ $ bps +79 bps 400 bps 54.7% ($253,105) Recommendations

5 Google Inc.

6 Global technology leader specialized in Internet search and advertising technologies 32,467 employees providing service in more than 100 languages and in more than 50 countries Products ranging from internet-based services and products up to operating systems and platforms Launched Google + in 2011 Ticker GOOG Current Stock Price $ Week Range $ $ Market Capitalization $ Billion Shares Outstanding Million Beta 1.18 Dividend Yield N/A 2011 Revenues $37.9 Billion 2011 Earnings $9.7 Billion Industry Internet Software & Service Google Overview Source: finance.yahoo.com 2011 Google 10K

7 Google Stock Performance 5-Year: 55.87% 3-Year: 33.72% 1-Year: 18.56% Year to Date: -5.48% Source: finance.yahoo.com

8 Value Drivers Recognized Brand Name International expansion Continuous R&D and New Products Cloud Storage Google Glass Driverless Car Large market share Strong growth trend for online advertising Risks Intense competition Single revenue source 96% of the revenue is from advertising Legal concerns May be subject to intellectual property claims Newly created products are having trouble Google Catalysts

9 25.0% 20.0% 15.0% 10.0% 5.0% Google vs S&P Profitability Operating Margin 32.3% 35.4% 35.1% 30.4% 30.6% Net Profit Margin 25.7% 29.0% 27.6% 19.4% 25.3% Management Effectiveness Return on Assets 11.7% 13.2% 14.4% 14.5% 14.5% Return on Equity 18.7% 20.7% 20.4% 16.6% 21.2% Solvency Debt/Asset 9.7% 11.2% N/A N/A N/A Debt/Common Equity 10.7% 12.6% N/A N/A N/A ROE 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% Google vs Sector 0.0% % GOOG S&P 500 GOOG Sector Source: Baseline

10 Year 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Revenue 45,783 53,960 63,079 73,172 84,148 95, , , , , ,386 % Growth 17.9% 16.9% 16.0% 15.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.5% Operating Income 15,034 17,870 20,573 21,952 23,561 24,941 25,786 26,001 28,081 29,765 31,105 Operating Margin 32.8% 33.1% 32.6% 30.0% 28.0% 26.0% 24.0% 22.0% 22.0% 22.0% 22.0% Interest and Other Interest % of Sales 1.0% 1.0% 1.0% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% Taxes 3,253 3,866 4,453 4,687 5,036 5,338 5,528 5,584 6,031 6,393 6,680 Tax Rate 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% Net Income 12,239 14,544 16,751 17,631 18,946 20,083 20,795 21,007 22,688 24,049 25,131 % Growth 18.8% 15.2% 5.3% 7.5% 6.0% 3.5% 1.0% 8.0% 6.0% 4.5% Add Depreciation/Amort 2,289 2,698 3,154 3,659 4,207 5,276 5,909 6,500 7,020 7,441 7,776 % of Sales 5.0% 5.0% 5.0% 5.0% 5.0% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% Plus/(minus) Changes WC (1,021) (1,047) (1,167) (1,466) (1,581) (1,682) (1,615) (1,480) (1,279) (1,017) (797) % of Sales -2.2% -1.9% -1.9% -2.0% -1.9% -1.8% -1.5% -1.3% -1.0% -0.8% -0.6% Subtract Cap Ex 4,578 5,936 7,570 7,317 7,573 7,674 7,521 7,682 8,297 7,441 7,776 Capex % of sales 10.0% 11.0% 12.0% 10.0% 9.0% 8.0% 7.0% 6.5% 6.5% 5.5% 5.5% Free Cash Flow 9,120 10,508 11,491 12,803 14,286 16,239 17,756 18,500 20,281 23,091 24,381 % Growth 15.2% 9.4% 11.4% 11.6% 13.7% 9.3% 4.2% 9.6% 13.9% 5.6% NPV of Cash Flows 90,906 41% NPV of terminal value 129,975 59% 377,450 Projected Equity Value 220, % Free Cash Flow Yield 4.64% 6.46% Current P/E Projected P/E Current EV/EBITDA Projected EV/EBITDA Shares Outstanding 327 Terminal Discount Rate = 11.25% Current Price $ Terminal FCF Growth = 4.5% Implied equity value/share $ Upside/(Downside) to DCF 12.4% Debt 4,204 Cash 9,983 Cash/share Total Assets 72,574 Debt/Assets 5.8% Working Capital % of Growth 13% Google DCF

11 Terminal FCF Growth Terminal Discount Rate $ % 10.75% 11.00% 11.25% 11.50% 11.75% 12.00% 3.0% $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ Google Sensitivity Analysis

12 Relative to Industry High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Absolute Valuation High Low Median Current Target Multiple Target / Share Target Price P/Forward E P/S P/B P/EBITDA P/CF Google Valuations Source: Baseline

13 Google - Technical Analysis

14 Target Price: $ Current Price (May 18, 2012): $ Potential Upside: 12.9% Hold Metric Target Price Weight DCF $ % P/Forward E $ % P/S $ % P/B $ % P/EBITDA $ % P/CF $ % Google Price Target Unit Cost: $ Unrealized Gain: $13,764

15 Intel Corporation

16 World s largest semiconductor chip maker based on revenue Five operating segments: PC Client Group Data Center Group Other Intel Architecture Group Software and Service Group All Other Major products includes: microprocessors, chipsets, system-on-chip products, wireless connectivity products, mobile phone component and platforms, etc. Founded in 1968; current 100,100 employees Ticker INTC Current Stock Price $ Week Range $19.16-$29.27 Market Capitalization $ Billion Shares Outstanding 5.03 Million Beta 1.01 Dividend Yield 3.20% 2011 Revenues $54 Billion 2011 Earnings $12.9 Billion Industry Semiconductor Intel Overview Source: finance.yahoo.com 2011 Intel 10K

17 Intel Stock Performance 10-Year: % 5-Year: 18.19% 3-Year: 68.75% 1-Year: 9.67% Year to Date: 6.72% Source: finance.yahoo.com

18 Value Drivers Ongoing strong demand in emerging markets Increasing R&D expenditure: $8.4 billion in 2011 Business expansion through product integration and acquisition Risks Continuing softness in mature market consumer segment: PC business is slowing down Low market share in the smartphone and tablets segments: dominated by ARM Holdings High volatility in the industry Intel Catalysts

19 Profitability Operating Margin 32.0% 36.0% 16.0% 24.0% 21.0% Net Profit Margin 24.0% 26.0% 12.0% 14.0% 18.0% Management Effectiveness Return on Assets 16.3% 16.8% 10.4% 11.4% 10.5% Return on Equity 27.1% 25.2% 10.8% 12.9% 17.5% Solvency Debt/Asset 10.4% 3.6% 4.4% 2.7% 3.8% Debt/Common Equity 16.2% 4.6% 5.7% 3.5% 5.0% Intel vs S&P 500 ROE Intel vs Sector 30.0% 30.0% 25.0% 25.0% 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% % Intel S&P 500 Intel Sector Source: Baseline

20 Intel DCF

21 Terminal FCF Growth Terminal Discount Rate 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 2.0% $34.96 $32.61 $30.54 $28.70 $27.06 $25.59 $ % $36.42 $33.83 $31.57 $29.58 $27.82 $26.24 $ % $38.10 $35.23 $32.75 $30.58 $28.67 $26.97 $ % $40.06 $36.85 $34.09 $31.71 $29.62 $27.79 $ % $42.38 $38.73 $35.64 $33.00 $30.71 $28.71 $ % $45.16 $40.95 $37.45 $34.48 $31.95 $29.75 $ % $48.56 $43.62 $39.58 $36.22 $33.37 $30.94 $28.83 Intel Sensitivity Analysis

22 Relative to Industry High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Absolute Valuation High Low Median Current Target Multiple Target / Share Target Price P/Forward E P/S P/B P/EBITDA P/CF Intel Valuations Source: Baseline

23 Intel - Technical Analysis

24 Target Price: $31.05 Current Price (May 18, 2012): $26.07 Potential Upside: 19.09% HOLD Metric Target Price Weight DCF $ % P/Forward E $ % P/S $ % P/B $ % P/EBITDA $ % P/CF $ % Intel Price Target Unit Cost: $21.72 Unrealized Gain: $112,748

25 Corning Inc.

26 Corning traces its origins to a glass business established in GLW was incorporated in 1936 Today Corning is a global technology-based corporation that operates in five business segments: Display Technologies Telecommunications Environmental Technologies Specialty Materials Life Sciences 28,800 employees manufacture and process products at approximately 60 plants in more than 13 countries. Ticker GLW Current Stock Price $ Week Range $11.51-$20.29 Market Capitalization $19.35 Billion Shares Outstanding 1.5 Billion Beta 1.4 Dividend Yield 2.3% 2011 Revenues $7,890 Million 2011 Earnings $2,805 Million Industry Electronic Instr. & Controls Corning Overview Source: finance.yahoo.com 2011 GLW 10K

27 Corning Inc. Stock Performance 10-Year: % 5-Year: % 3-Year: % 1-Year: % Year to Date: -1.77% Source: finance.yahoo.com

28 Value Drivers Recognized Brand Name Momentum- coming off the highest annual sales in the company s history last year Stock repurchase program of up to $1.5 billion Innovative new products: Gorilla Glass in tablets/mobile Increase in Corning s dividend from $0.05 to $0.075 per share Recent acquisitions: MobileAccess Mediatech Surge in Internet bandwidth requiring massive bandwidth fiber-optic networks Push for greener environment drives demand for emissions-control products Incredibly cheap valuations offering opportunity to get a strong leading company at a discount price Risks In 2011, Corning s ten largest customers accounted for 51% of their sales Potential demand for products to decline Pricing pressures in each of their leading businesses As a result of intense competition, emerging new technologies, or over-capacity. International risks: Earthquake in Japan If corning were to lose 1 of 3 over-seas facilities, could produce severe impact Also currency risks: In 2011, 62% of net sales were from Asia Pacific, 10% from Europe, only 24% of sales were from North America. Dependence on ability to purchase a sufficient amount of materials, precious metals, parts and equipment. Risks from equity method investments in companies like Samsung Corning Precision Unforeseen additional tax liabilities, or changes in their effective tax rate Corning Catalysts

29 Corning Inc. (GLW) Profitability Operating Margin 23.4% 21.5% 11.8% 20.2% 21.5% Net Profit Margin 35.6% 53.6% 37.2% 88.4% 36.7% Management Effectiveness Return on Assets 10.5% 15.1% 9.9% 30.5% 15.2% Return on Equity 13.9% 20.4% 13.9% 45.8% 25.8% Solvency Debt/Asset 8.4% 8.7% 9.0% 7.9% 9.9% Debt/Common Equity 11.2% 11.7% 12.4% 11.4% 15.9% Source: Baseline

30 GLW DCF

31 Terminal FCF Growth Terminal Discount Rate $ % 9.0% 10.0% 11.3% 12.0% 13.0% 17.0% 0.0% $31.85 $27.76 $24.51 $21.30 $19.71 $17.89 $ % $34.61 $29.73 $25.97 $22.33 $20.55 $18.55 $ % $38.29 $32.27 $27.79 $23.57 $21.57 $19.33 $ % $41.97 $34.71 $29.48 $24.70 $22.47 $20.01 $ % $51.17 $40.40 $33.25 $27.10 $24.35 $21.41 $ % $64.04 $47.51 $37.61 $29.71 $26.34 $22.83 $ % $89.80 $59.36 $44.16 $33.32 $28.99 $24.67 $15.28 Corning Inc Sensitivity Analysis

32 Relative to Industry High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Absolute Valuation High Low Median Current Target Multiple Target / Share Target Price P/Forward E P/S P/B P/EBITDA P/CF Corning Inc Valuations Based on P/Trailing E, GLW currently trades at a 50% Discount to its Elec. Components & Equip. Industry peers. Source: Baseline

33 Corning - Technical Analysis

34 Target Price: $25.51 Current Price (May 18, 2012): $12.75 Potential Upside: 81.88% HOLD Metric Target Price Weight DCF $ % P/Forward E $ % P/S $ % P/B $ % P/EBITDA $ % P/CF $ % Corning Inc Price Target Unit Cost: $16.77 Unrealized (Loss): ($93,993)

35 Oracle Corporation

36 World s largest enterprise software company Nearly 108,000 employees serving more than 380,000 in more than 145 countries Products include both software and hardware systems Acquired Sun and initiated hardware systems business in 2010 Oracle Overview Source: finance.yahoo.com Oracle 10K Ticker ORCL Current Stock Price $ Week Range $24.72-$34.30 Market Capitalization Shares Outstanding $ Billion 4.98 Billion Beta 1.28 Dividend Yield 0.90% 2011 Revenues $35.6 Billion 2011 Earnings $8.5 Billion Industry Systems Software

37 Oracle Stock Performance 10-Year: % 5-Year: 36.43% 3-Year: 38.74% 1-Year: % Year to Date: 1.47% Source: finance.yahoo.com

38 Value Drivers Active Acquisition Popular Products Database Software Cloud Services Oracle Fusion Middleware Hardware Systems Development Continued Innovation Risks Distinct Seasonality Furious Competition vs. Pressure to Develop New Products Additional Risk from International Sales Recent Lawsuit with Google Oracle Catalysts

39 Profitability Operating Margin 33.8% 33.8% 35.8% 35.0% 33.2% Net Profit Margin 24.0% 22.9% 24.1% 24.6% 23.7% Management Effectiveness Return on Assets 11.6% 10.0% 11.8% 11.7% 12.4% Return on Equity 24.1% 22.0% 23.2% 27.6% 26.8% Solvency Debt/Asset 21.7% 23.8% 21.7% 23.8% 22.0% Debt/Common Equity 40.0% 47.5% 40.9% 48.8% 44.9%

40 Year 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Revenue 41,904 46,513 49,725 52,460 55,083 57,562 59,864 61,959 63,818 65,733 67,705 % Growth 11.0% 6.9% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 3.0% 3.0% Operating Income 13,218 14,770 16,041 16,630 17,516 18,362 19,157 19,765 20,294 20,903 21,530 Operating Margin 31.5% 31.8% 32.3% 31.7% 31.8% 31.9% 32.0% 31.9% 31.8% 31.8% 31.8% Interest, net ,049 1,102 1,151 1,197 1,239 1,276 1,315 1,354 Interest % of Sales 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Other expenses Other expenses % of Sales 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% Taxes 3,640 4,145 4,583 4,754 5,007 5,247 5,457 5,632 5,784 5,957 6,136 Tax Rate 25.5% 26.0% 26.5% 26.5% 26.5% 26.5% 26.5% 26.5% 26.5% 26.5% 26.5% Net Income 10,634 11,797 12,711 13,187 13,887 14,554 15,136 15,620 16,042 16,523 17,019 % Growth 10.9% 7.7% 3.7% 5.3% 4.8% 4.0% 3.2% 2.7% 3.0% 3.0% Add Depreciation/Amort 2,137 2,419 2,635 2,675 2,754 2,763 2,694 2,664 2,553 2,432 2,370 % of Sales 5.1% 5.2% 5.3% 5.1% 5.0% 4.8% 4.5% 4.3% 4.0% 3.7% 3.5% Plus/(minus) Changes WC (1,732) (876) (610) (519) (496) (466) (431) (390) (345) (355) (366) % of Sales -4.1% -1.9% -1.2% -1.0% -0.9% -0.8% -0.7% -0.6% -0.5% -0.5% -0.5% Subtract Cap Ex ,151 1,377 1,673 1,915 2,103 2,370 Capex % of sales 1.3% 1.4% 1.5% 1.7% 1.8% 2.0% 2.3% 2.7% 3.0% 3.2% 3.5% Free Cash Flow 10,525 12,496 13,713 14,198 14,879 15,451 15,830 16,091 16,272 16,503 16,732 % Growth 18.7% 9.7% 3.5% 4.8% 3.8% 2.5% 1.6% 1.1% 1.4% 1.4% NPV of Cash Flows 89,321 51% NPV of terminal value 84,667 49% Terminal Value 229,793 Projected Equity Value 173, % Free Cash Flow Yield 8.01% Free Cash Yield 7.28% Current P/E Terminal P/E 13.5 Projected P/E Current EV/EBITDA Terminal EV/EBITDA 9.6 Projected EV/EBITDA Shares Outstanding 5,128 Current Price $ Implied equity value/share $ Terminal Discount Rate = 10.5% Upside/(Downside) to DCF 32.5% Terminal FCF Growth = 3.0% Debt 15,922 Cash 15,451 Cash/share 3.01 Total Assets 73,535 Debt/Assets 21.7% Working Capital % of Growth 18% Oracle DCF

41 Terminal FCF Growth Terminal Discount Rate $ % 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 0% $32.73 $30.95 $29.36 $27.92 $26.61 $25.41 $ % $35.12 $33.03 $31.17 $29.50 $28.00 $26.65 $ % $38.20 $35.66 $33.43 $31.46 $29.71 $28.14 $ % $42.31 $39.09 $36.32 $33.93 $31.83 $29.98 $ % $48.05 $43.76 $40.19 $37.16 $34.56 $32.31 $ % $56.66 $50.51 $45.59 $41.56 $38.20 $35.35 $ % $71.00 $61.11 $53.69 $47.91 $43.29 $39.49 $36.33 Oracle Sensitivity Analysis

42 Relative to Industry High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Absolute Target Target / Target High Low Median Current Valuation Multiple Share Price P/Forward E P/S P/B P/EBITDA P/CF Oracle Valuations Source: Baseline

43 Oracle - Technical Analysis

44 Target Price: $34.45 Current Price (May 18, 2012): $25.61 Potential Upside: 32.5% Hold Metric Target Price Weight DCF $ % P/Forward E $ % P/S $ % P/B $ % P/EBITDA $ % P/CF $ % Oracle Price Target Unit Cost: $30.12 Unrealized (Loss): ($5,625)

45 Apple Inc.

46 Founded in 1976 and is headquartered in Cupertino, California Segment by product Mac desktops Mac portables ipod Other music related P&S Iphone and related P&S Ipad and related P&S Peripherals and other hardware Software, service and other sales As of Sep , 245 retail stores in the US, 112 stores internationally. Ticker AAPL Current Stock Price $ Week Range $ $ Market Capitalization Shares Outstanding $ Billion Million Beta 0.94 Dividend Yield N/A 2011 Revenues $108.2 Billion 2011 Earnings $25.9 Billion Industry Computer Hardware Apple Inc.

47 Apple Stock Performance 10-Year: % 5-Year: % 3-Year: % 1-Year: 55.75% Year to Date: 28.97% Apple Inc.

48 Value Drivers Risks Apple generated more than $33 billion in free cash flow during fiscal 2011 and has NO debt Apple's retail stores, (No middle man, provide platform for exposing the company's expanding product line) Staying power because it has developed an ecosystem that connects success in one generation of devices to successive consumer purchases Apple Catalysts Loss of Steve Jobs (Can Apple innovate faster and better than competitors without Steve?) Any stumble in early product cycle High price points of its products could limit growth in emerging markets Ambiguity of ultimate side of the global handset and table market Revenue growth could slow dramatically if Apple fails to penetrate the masses in emerging markets More than 40% of Apple's revenue comes from iphone line, (Remember RIMM Blackberry?)

49 Profitability Operating Margin 31.2% 28.2% 27.4% 19.3% 18.4% Net Profit Margin 23.9% 21.5% 19.2% 14.9% 14.6% Management Effectiveness Return on Assets 22.3% 18.6% 17.3% 12.2% 13.8% Return on Equity 33.8% 29.3% 26.0% 23.0% 24.1% Solvency Debt/Asset 0.0% 0.0% 0.0% 0.0% 0.0% Debt/Common Equity 0.0% 0.0% 0.0% 0.0% 0.0% 40.0% ROE Apple VS Sector 40.0% ROE Apple VS S&P % 35.0% 30.0% 30.0% 25.0% 20.0% 15.0% Apple Sector 25.0% 20.0% 15.0% Apple S&P % 10.0% 5.0% 5.0% 0.0% %

50 Year 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Revenue 161, , , , , , , , , , ,996 % Growth 20.4% 20.3% 7.0% 6.0% 5.5% 5.5% 5.2% 4.5% 4.5% 4.3% Operating Income 56,026 65,695 76,291 70,149 66,391 67,241 65,027 62,190 64,988 64,517 67,259 Operating Margin 34.6% 33.7% 32.6% 28.0% 25.0% 24.0% 22.0% 20.0% 20.0% 19.0% 19.0% Other income and expense ,019 1,062 Interest % of Sales 0.4% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% Taxes 16,978 19,896 23,098 21,270 20,156 20,424 19,774 18,937 19,789 19,661 20,496 Tax Rate 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Net Income 39,615 46,423 53,896 49,630 47,031 47,657 46,140 44,186 46,174 45,875 47,825 % Growth 17.2% 16.1% -7.9% -5.2% 1.3% -3.2% -4.2% 4.5% -0.6% 4.3% Add Depreciation/Amort 2,716 3,310 3,980 4,760 5,311 5,603 6,207 7,774 9,098 9,508 9,912 % of Sales 1.7% 1.7% 1.7% 1.9% 2.0% 2.0% 2.1% 2.5% 2.8% 2.8% 2.8% Plus/(minus) Changes WC (351) (319) (308) (325) (323) (292) (306) (301) % of Sales 0.1% 0.5% 0.2% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% Subtract Cap Ex 6,468 8,177 10,068 9,771 10,091 9,806 9,754 9,328 9,748 9,508 9,912 Capex % of sales 4.0% 4.2% 4.3% 3.9% 3.8% 3.5% 3.3% 3.0% 3.0% 2.8% 2.8% Free Cash Flow 35,946 42,526 48,336 44,269 41,933 43,146 42,268 42,308 45,232 45,570 47,524 % Growth 18.3% 13.7% -8.4% -5.3% 2.9% -2.0% 0.1% 6.9% 0.7% 4.3% NPV of Cash Flows 265,861 48% NPV of terminal value 292,069 52% 792,700 Projected Equity Value 557, % Free Cash Flow Yield 7.27% 6.00% Current P/E Projected P/E Current EV/EBITDA Projected EV/EBITDA Shares Outstanding 932 Current Price $ Terminal Discount Rate = Implied equity value/share $ Terminal FCF Growth = 4.3% Upside/(Downside) to DCF 12.8% Debt - Cash 25,952 Cash/share Total Assets 116,371 Debt/Assets 0.0% Working Capital % of Growth 2% Apple DCF

51 Terminal FCF Growth Terminal Discount Rate 9.0% 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 2.75% $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $ $ $ $ $ $ $ % $1, $ $ $ $ $ $ Apple Sensitivity Analysis

52 Relative to Industry High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Absolute Target Target / Target High Low Median Current Valuation Multiple Share Price P/Forward E P/S P/B P/EBITDA P/CF Apple Valuations

53 Apple - Technical Analysis

54 Target Price: $ Current Price (May 18, 2012): $ Potential Upside: 9.9% Sell Metric Target Price Weight DCF $ % P/Forward E $ % P/S $ % P/B $ % P/EBITDA $ % P/CF $ % Apple Price Unit Cost: $ Unrealized Gain: $327,053

55 Hewlett-Packard Co.

56 World s largest computer hardware company Nearly 325,000 employees serving over 1 billion customers in more than 170 countries Products ranging from personal computers up to enterprise servers Recently hired Meg Whitman as CEO Ticker HPQ Current Stock Price $ Week Range $21.28-$37.70 Market Capitalization Shares Outstanding $42.43 Billion 2.13 Billion Beta 1.41 Dividend Yield 2.20% 2011 Revenues $120.9 Billion 2011 Earnings $11.2 Billion Industry Computer Hardware Hewlett-Packard Overview Source: HP.com finance.yahoo.com

57 Hewlett-Packard Stock Performance 10-Year: 15.40% 5-Year: % 3-Year: % 1-Year: % Year to Date: % Source: finance.yahoo.com

58 Value Drivers CEO Meg Whitman New Products Cloud (U.S. & Corporate) Slim Books (AMD) Windows 8 Tablets Focus on R&D Risks Broken consumer confidence Windows 8 Layoff backlash Further economic downturn Hewlett-Packard Catalysts

59 Profitability Operating Margin 9.0% 10.2% 9.6% 9.1% 8.4% Net Profit Margin 6.9% 8.1% 7.6% 6.9% 6.1% Management Effectiveness Return on Assets 6.8% 8.2% 7.6% 7.2% 7.1% Return on Equity 22.5% 25.0% 21.4% 21.0% 16.4% Solvency Debt/Asset 23.7% 17.9% 13.8% 15.8% 9.2% Debt/Common Equity 57.9% 27.9% 6.2% 19.5% -8.5% Source: Bloomberg

60 Year 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Revenue 120, , , , , , , , , , ,760 % Growth 3.2% 5.6% 5.2% 4.9% 4.5% 4.1% 3.7% 3.5% 3.3% 3.0% Operating Income 11,192 12,423 13,289 13,177 13,095 12,924 12,663 12,311 11,892 11,407 10,846 Operating Margin 9.3% 10.0% 10.1% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% Interest and Other (665) (686) (725) (763) (800) (836) (871) (903) (934) (965) (994) Interest % of Sales -0.6% -0.6% -0.6% -0.6% -0.6% -0.6% -0.6% -0.6% -0.6% -0.6% -0.6% Taxes 2,190 2,441 2,613 2,582 2,557 2,514 2,453 2,373 2,279 2,172 2,049 Tax Rate 20.8% 20.8% 20.8% 20.8% 20.8% 20.8% 20.8% 20.8% 20.8% 20.8% 20.8% Net Income 8,337 9,296 9,951 9,832 9,738 9,574 9,340 9,035 8,679 8,270 7,802 % Growth 11.5% 7.0% -1.2% -1.0% -1.7% -2.4% -3.3% -3.9% -4.7% -5.7% Add Depreciation/Amort 3,626 3,744 3,956 4,161 4,365 4,562 4,749 4,924 5,097 5,265 5,423 % of Sales 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Plus/(minus) Changes WC 1,898 (295) (529) (1,947) (1,925) (1,847) (1,752) (1,640) (1,605) (1,564) (1,464) % of Sales 1.6% -0.2% -0.4% -1.4% -1.3% -1.2% -1.1% -1.0% -0.9% -0.9% -0.8% Subtract Cap Ex 3,626 3,744 3,956 4,161 4,365 4,562 4,749 4,924 5,097 5,265 5,423 Capex % of sales 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Free Cash Flow 9,905 9,053 9,514 8,224 8,149 8,049 7,893 7,681 7,353 6,979 6,594 % Growth -8.6% 5.1% -13.6% -0.9% -1.2% -1.9% -2.7% -4.3% -5.1% -5.5% NPV of Cash Flows 46,350 66% NPV of terminal value 24,296 34% Terminal Value 75,459 Projected Equity Value 70, % Free Cash Flow Yield 18.99% Free Cash Yield 8.74% Current P/E Terminal P/E 9.7 Projected P/E Current EV/EBITDA Terminal EV/EBITDA 5.5 Projected EV/EBITDA Shares Outstanding 2,128 Current Price $ Implied equity value/share $ Terminal Discount Rate = 12.0% Upside/(Downside) to DCF 54.7% Terminal FCF Growth = 3.0% Debt 22,591 Cash 8,043 Cash/share 3.78 Total Assets 129,517 Debt/Assets 17.4% Working Capital % of Growth 27% Hewlett-Packard DCF

61 Terminal FCF Growth Terminal Discount Rate 9% 10% 11% 12% 13% 14% 15% 0% $41.46 $37.48 $34.21 $31.48 $29.17 $27.18 $ % $42.88 $38.45 $34.89 $31.96 $29.51 $27.43 $ % $44.67 $39.64 $35.70 $32.52 $29.91 $27.71 $ % $47.03 $41.15 $36.70 $33.20 $30.37 $28.03 $ % $50.30 $43.14 $37.96 $34.02 $30.92 $28.40 $ % $55.17 $45.90 $39.62 $35.07 $31.59 $28.84 $ % $63.22 $49.99 $41.92 $36.43 $32.44 $29.37 $26.94 Hewlett-Packard Sensitivity Analysis

62 Relative to Industry High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Absolute Target Target / Target High Low Median Current Valuation Multiple Share Price P/Forward E P/S P/B P/EBITDA P/CF Hewlett-Packard Valuations Source: Baseline

63 Hewlett-Packard - Technical Analysis

64 Target Price: $34.41 Current Price (April 18, 2012): $21.46 Potential Upside: 54.7% BUY Metric Target Price Weight DCF $ % Sum of Parts $ % P/Forward E $ % P/S $ % P/B $ % P/EBITDA $ % P/CF $ % Hewlett-Packard Price Target Unit Cost: $40.58 Unrealized (Loss): ($253,105)

65 Conclusion

66 Value Drivers AAPL: $33 billion in free cash flow AAPL: Apple retail stores HPQ: CEO Meg Whitman HPQ: Focus on R&D Conclusion Risks AAPL: Worth twice the 4 th largest company AAPL: 56% of the SIM portfolio unrealized gains HPQ: Broken consumer confidence HPQ: Windows 8