Materials stock analysis Chris Pierce Jyotisko Sinha Colin Souza Jake Vogel Dustin Wills Fisher College of Business Student Investment Management
Agenda Stock Monsanto () Analysis Alcoa () Analysis Freeport-McMoRan () Analysis Summary Q&A
of Increase SIM weight to even w/ S&P 500. Increase of 190 bps to 355 bps. Requires investment in another corporation not currently assigned to the group. Current SIM Weight Proposed SIM Weight S&P 500 Weight Increase/ (Decrease) 1.64% 3.55% 3.55% +1.90%
Throughout the Quarter Current Price Target Price Upside / (Downside) $87.98 $79 (10.2%) $29.90 $34 13.7% $25.10 $22 (12.4%) $76.61 $75 (13.8%) $57.70 $59 1.5%
SELL SIM Portfolio: Currently Own 5200 Shares (1.64% of portfolio) Company: Monsanto () Current Price: $57.70 Target Price: $58 (1.5%) 52 Week Range: $44.61-87.06 Market Cap: $31.08B Industry: Chemicals-Agriculture / Fertilizers
Monsanto Co. 1 Year Performance Bought Monsanto Co. $82.10
Valuation Tables Sector Industry Stock Absolute Basis P/Trailing E 38.6 8.1 17.9 20.3 P/Forward E 10. 32 16.7 14 5 P/B 3.7 1.3 2.7 2.4 P/S 1.5.5 1.1 1.1 P/CF 12.7 5.4 9.4 9.7 Absolute Basis P/Trailing E 58.6 9.5 22.2 17.2 P/Forward E 10. 43.1 22.8 18.1 8 P/B 9.3.5 3.2 2.7 P/S 7.6.7 2.9 2.6 P/CF 38.0 5.4 13.5 12.8 Absolute Basis P/Trailing E 50.7 10.6 20.7 22.8 P/Forward E 43.2 10.6 20.3 18.3 P/B 7.6.5 3.0 2.9 P/S 7.1.7 3.0 3.0 P/CF 39.2 3.6 14.9 16.0 Relative to SP500 P/Trailing E 1.8.49 1.0 1.4 P/Forward E 1.9.67 1.0 1.0 P/B 1.3.4.9 1.2 P/S 1.1.4.8 1.0 P/CF 1.1.4.9 1.1 Relative to SP500 P/Trailing E 3.5.43 1.4 1.2 P/Forward E 3.0.68 1.4 1.4 P/B 3.8.2 1.1 1.4 P/S 5.5.6 2.0 2.4 P/CF 3.6.4 1.4 1.4 Relative to SP500 P/Trailing E 3.3.51 1.3 1.5 P/Forward E 3.0.58 1.3 1.4 P/B 3.1.2 1.1 1.4 P/S 5.4.5 2.0 2.7 P/CF 3.6.3 1.5 1.8
Discounted Cash Flow Analysis
Alcoa Company: Alcoa () Current Price: $10.64 Target Price: $14 (37%) 52 Week Range: $9.81-17.60 Market Cap: $10.9B Industry: Aluminum
Alcoa () DCF Alcoa() Terminal Discount Rate = 12.0% Terminal FCF Growth = 3.0% Year 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Revenue 22,309 24,094 25,781 27,328 28,694 29,842 30,737 31,659 32,609 33,587 34,595 % Growth 11.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% Operating Income 1,539 2,144 2,552 2,979 3,070 3,133 3,166 3,198 3,228 3,258 3,286 Operating Margin 6.9% 8.9% 9.9% 10.9% 10.7% 10.5% 10.3% 10.1% 9.9% 9.7% 9.5% Interest and Other 486 494 503 533 560 582 599 617 636 655 675 Interest % of Sales 2.2% 2.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Taxes 274 429 533 774 798 815 823 831 839 847 854 Tax Rate 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% Net Income 779 1,221 1,517 1,671 1,712 1,737 1,743 1,749 1,753 1,756 1,757 % Growth 56.7% 24.2% 10.2% 2.5% 1.4% 0.4% 0.3% 0.2% 0.2% 0.1% Add Depreciation/Amort 1,300 1,373 1,444 1,503 1,549 1,582 1,598 1,615 1,630 1,679 1,730 % of Sales 5.8% 5.7% 5.6% 5.5% 5.4% 5.3% 5.2% 5.1% 5.0% 5.0% 5.0% Plus/(minus) Changes WC 11 (214) (202) (202) (29) (30) (31) (32) (33) (34) (35) % of Sales 0.0% -0.9% -0.8% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% Subtract Cap Ex 1,600 1,687 1,748 1,793 1,819 1,826 1,813 1,798 1,780 1,760 1,737 Capex % of sales 7.2% 7.0% 6.8% 6.6% 6.3% 6.1% 5.9% 5.7% 5.5% 5.2% 5.0% Free Cash Flow 490 694 1,010 1,179 1,414 1,462 1,497 1,533 1,570 1,642 1,716 % Growth 41.4% 45.6% 16.8% 19.9% 3.4% 2.4% 2.4% 2.4% 4.5% 4.5% NPV of Cash Flows 7,223 53% Debt 9,859 NPV of terminal value 6,322 47% Cash 1,481 Terminal Value 19,637 Projected Equity Value 13,546 100% Cash/share 1.58 Free Cash Flow Yield 4.95% Free Cash Yield 8.74% Shares Outstanding 935 Current P/E 12.7 8.1 6.5 Terminal P/E 11.2 Projected P/E 17.4 11.1 8.9 Current Price $10.60 Current EV/EBITDA 6.4 5.2 4.6 Implied equity value/share $14.48 Terminal EV/EBITDA 5.6 Projected EV/EBITDA 7.7 6.2 5.5 Upside/(Downside) to DCF 36.6%
Alcoa () Valuation Analysis Sector Industry Stock Absolute Basis P/Trailing E 33 8.1 15.9 21.6 P/Forward E 28.6 11 15.3 14.5 P/B 3.7 1.3 2.8 2.6 P/S 1.5 0.5 1.2 1.2 P/CF 12.7 5.4 9.6 10.3 Absolute Basis P/Trailing E 35.6 5 13.3 nm P/Forward E 115 8.1 12.8 20.1 P/B 2.4 0.3 1.8 0.9 P/S 1.2 0.2 0.9 0.6 P/CF 67 3.1 9 8.8 Absolute Basis P/Trailing E 43 5.2 13.4 39.4 P/Forward E 115 8.2 13 15.7 P/B 2.5 0.4 1.8 0.9 P/S 1.2 0.2 0.9 0.6 P/CF 39.6 2.3 9.2 6.7 Relative to SP500 P/Trailing E 1.8 0.7 0.98 1.4 P/Forward E 1.9 0.8 1 1.1 P/B 1.3 0.9 1 1.2 P/S 1.1 0.7 0.9 1 P/CF 1.1 0.7 0.9 1.1 Relative to SP500 P/Trailing E 2.4 0.5 0.81 nm P/Forward E 7 0.6 0.87 1.5 P/B 0.8 0.2 0.6 0.4 P/S 0.8 0.3 0.6 0.5 P/CF 5.9 0.4 0.8 1 Relative to SP500 P/Trailing E 2.9 0.5 0.83 2.6 P/Forward E 7 0.6 0.87 1.1 P/B 2.5 0.4 1.8 0.9 P/S 0.8 0.3 0.6 0.5 P/CF 3.7 0.3 0.9 0.7
Sensitivity Analysis Discount Rate 11.0% 11.5% 12.0% 12.5% 13.0% Growth Rate 2.0% 43% 35% 28% 21% 15% 2.5% 49% 40% 32% 25% 18% 3.0% 55% 45% 37% 29% 22% 3.5% 62% 51% 42% 34% 26% 4.0% 70% 58% 48% 39% 31%
Alcoa () Risks Materials Pricing Global Competition Cost Management Product Demand!
Freeport McMoRan () Company: Freeport-McMoRan () Current Price: $70.07 Target Price: $105 (47%) 52 Week Range: $56.71-90.55 Market Cap: $33.23B Industry: Diverse Metals/Mining
Freeport McMoRan Copper & Gold () Freeport-McMoRan () DCF Terminal Discount Rate = 12.0% 8/16/2010 Terminal FCF Growth = 3.0% Year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Revenue 17,500 18,400 19,300 20,265 21,228 22,183 23,126 24,051 24,916 25,739 26,511 % Growth 5.1% 4.9% 5.0% 4.8% 4.5% 4.3% 4.0% 3.6% 3.3% 3.0% Operating Income 7,907 8,313 8,720 8,714 8,703 8,651 8,788 8,899 8,970 9,266 9,544 Operating Margin 45.2% 45.2% 45.2% 43.0% 41.0% 39.0% 38.0% 37.0% 36.0% 36.0% 36.0% Interest Expense (525) (552) (579) (588) (616) (643) (671) (697) (723) (746) (769) Interest % of Sales -3.0% -3.0% -3.0% -2.9% -2.9% -2.9% -2.9% -2.9% -2.9% -2.9% -2.9% Taxes 2,918 3,068 3,218 2,641 2,629 2,603 2,638 2,665 2,680 2,769 2,852 Tax Rate 30.5% 32.0% 32.5% 32.5% 32.5% 32.5% 32.5% 32.5% 32.5% 32.5% 32.5% Net Income 4,376 4,601 4,827 5,485 5,459 5,405 5,479 5,536 5,567 5,751 5,923 % Growth 5.1% 4.9% 13.6% -0.5% -1.0% 1.4% 1.0% 0.6% 3.3% 3.0% Add Depreciation/Amort 1,225 1,288 1,351 1,469 1,592 1,719 1,850 1,984 2,118 2,188 2,253 % of Sales 7.0% 7.0% 7.0% 7.3% 7.5% 7.8% 8.0% 8.3% 8.5% 8.5% 8.5% Plus/(minus) Changes WC 633 206 49 20 (42) (44) (46) (48) (50) (51) (53) % of Sales 3.6% 1.1% 0.3% 0.1% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% -0.2% Subtract Cap Ex 1,750 1,840 1,930 1,976 2,017 2,052 2,081 2,104 2,118 2,188 2,253 Capex % of sales 10.0% 10.0% 10.0% 9.8% 9.5% 9.3% 9.0% 8.8% 8.5% 8.5% 8.5% Free Cash Flow 4,484 4,255 4,297 4,999 4,992 5,028 5,202 5,367 5,517 5,699 5,870 % Growth -5.1% 1.0% 16.3% -0.1% 0.7% 3.4% 3.2% 2.8% 3.3% 3.0% NPV of Cash Flows 28,045 56% Debt 6,346 NPV of terminal value 21,630 44% Cash 2,656 Terminal Value 67,181 Projected Equity Value 49,676 100% Cash/share 5.63 Free Cash Flow Yield 13.45% Free Cash Yield 8.74% Shares Outstanding 472 Current P/E 7.6 7.2 6.9 Terminal P/E 11.3 Projected P/E 11.4 10.8 10.3 Current Price $ 70.63 Current EV/EBITDA 4.1 3.9 3.7 Implied equity value/share $ 105.25 Terminal EV/EBITDA 6.0 Projected EV/EBITDA 5.8 5.6 5.3 Upside/(Downside) to DCF 49.0%
Freeport-McMoRan () Valuation Sector Industry Stock Absolute Basis P/Trailing E 38.6 8.1 18.4 22.2 P/Forward E 32 11 16.7 15 P/B 3.7 1.3 2.7 2.7 P/S 1.5 0.5 1.1 1.2 P/CF 12.7 5.4 9.4 10.5 Absolute Basis High Low Median Current P/Trailing E 117 3.1 12 10.1 P/Forward E 280 5.4 11 10.7 P/B 9.4 0.6 2.9 5 P/S 3.2 0.5 1.8 1.9 P/CF 11.8 2.2 7.2 7.5 Absolute Basis P/Trailing E 328 2.9 16.1 8.9 P/Forward E 61.3 5.3 11.9 8.5 P/B 97.5 0.6 6.3 4.2 P/S 3.3 0.5 2 1.9 P/CF 27.4 1.9 8.2 6.8 Relative to SP500 P/Trailing E 1.8 0.5 1 1.4 P/Forward E 1.9 0.7 1 1.1 P/B 1.3 0.4 0.9 1.2 P/S 1.1 0.4 0.8 1 P/CF 1.1 0.4 0.9 1.1 Relative to SP500 High Low Median Current P/Trailing E 6.6 0.3 0.76 0.65 P/Forward E 12.3 0.4 0.76 0.76 P/B 3 0.2 1 2.3 P/S 2.2 0.4 1.2 1.6 P/CF 1.1 0.3 0.6 0.8 Relative to S&P 500 P/Trailing E 16 0.2 0.94 0.61 P/Forward E 5.7 0.3 0.7 0.64 P/B 34.1 0.3 2.8 2.1 P/S 2.2 0.3 1.5 1.8 P/CF 2.5 0.2 0.8 0.8
Sensitivity Analysis Discount Rate 11.0% 11.5% 12.0% 12.5% 13.0% Growth Rate 2.0% 56% 47% 40% 33% 27% 2.5% 60% 51% 43% 36% 29% 3.0% 66% 56% 47% 39% 32% 3.5% 72% 61% 52% 43% 36% 4.0% 79% 67% 57% 48% 40%
Freeport-McMoRan () Risks Declines in the prices of materials Copper Gold Molybdenum Foreign Exchange Rates Natural Disaster/Enviromental Catastrophe Global Political Risk
Macro Risks ECONOMY Inflation/Deflation Regulation Global Competition
Sell 164 bps of Monsanto. Buy 200 bps of. Buy 155 bps of Alcoa. Increase SIM weight to even w/ S&P 500.
Q & A Fisher College of Business Student Investment Management