industrials sector analysis - fisher college of business | sector analysis wes faulkenberry, ma...

IndustrialsSectorAnalysis

WesFaulkenberry,Ma0Landy,JeridLinkhart&MichaelMcLellandBUSFIN7225-SIM

Industrials Sector

Sector Overview

Business Analysis

Economic Analysis

Financial Analysis

Valuation

Recommendation

Industrials Sector

Sector Overview

Business Analysis

Economic Analysis

Financial Analysis

Valuation

Recommendation

Sector Overview

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SIM •  SIM Holdings - $6,652k •  Industrials Holdings - $654k SPX •  SPX Market Cap – $30.23T •  Industrials Sector – $3.12T

Sector Overview

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Sector Overview

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9.4%

2.7%

3.0%

2.6%

2.6%

2.1%

2.4%

3.0%

3.0%

Sector Overview

•  Placeholder

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Industrials Sector

Sector Overview

Business Analysis

Economic Analysis

Financial Analysis

Valuation

Recommendation

Business Analysis

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Business Analysis

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Business Analysis

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•  Porter’s Five Forces Analysis Porter's Five Forces Analysis-Industrials Sector

Force Barriers to Entry Supplier Power Buyer Power Substitutes Competition

Threat High Medium Medium Medium High

Attr

ibut

es

(+) High startup costs due to large capital

expenditure requirements and

established companies with high brand

awareness

(+) Most raw materials are easily obtainable

and low switching costs

(-) Cyclical business dependent on economic

conditions

(-) Products can be easily replicated with

new technologies

(+) Established customer base and few major players in each

industry

Industrials Sector

Sector Overview

Business Analysis

Economic Analysis

Financial Analysis

Valuation

Recommendation

Economic Analysis

•  Industrials compared to consumer confidence

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S&P 500 Compared to Consumer Confidence

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Economic Analysis

Economic Analysis

•  Industrials compared to Oil prices

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Industrials Sector

Sector Overview

Business Analysis

Economic Analysis

Financial Analysis

Valuation

Recommendation

Financial Analysis

Industrials Sector – Sales & Earnings

•  Sales Growth- 2014 4.989%, 2015E 2.807%, 2016E 1.464%

•  Earnings Growth – 2014 11.75%, 2015 7.48%, 2016E 6.68%

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Financial Analysis •  Aircraft, Defense, Construction

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Financial Analysis

•  Operating Margin – 12.70% •  Profit Margin – 7.02 •  R&D/Sales– 2.23% •  ROE – 16.24 %

Free Cash Flow Yield

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Financial Analysis

Industrials Sector

Sector Overview

Business Analysis

Economic Analysis

Financial Analysis

Valuation

Recommendation

Valuation

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Industrials Sector (S5INDU) Absolute Basis High Low Median Current P/E 20 7.3 17.1 16.3 P/B 3.9 1.6 3.0 3.6 P/S 1.7 0.6 1.4 1.5 P/EBITDA 10.1 3.8 8.7 8.5

Relative to SP500 High Low Median Current P/E 0.83 0.61 1.03 0.90 P/B 1.30 1.0 1.25 1.33 P/S 0.94 0.86 1.0 0.83 P/EBITDA 0.98 0.86 1.21 0.84

Absolute Basis (SPX) High Low Median Current P/E 24 11.9 16.6 18.1 P/B 3.0 1.6 2.4 2.7 P/S 1.8 0.7 1.4 1.8 P/EBITDA 10.3 4.4 7.2 10.1

Valuation

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Industry P/E P/B P/S P/CF P/EBITDAAerospace&Defense(11members) 16.78094 6.247687 1.564863 14.31875 9.301431AirFreight&Logistics(4members) 20.2582 16.27574 1.173332 13.84045 11.60592Airlines(4members) 9.769167 5.29648 0.944195 7.002726 5.213451BuildingProducts(2members) 24.0069 124.4944 1.972612 19.99589 12.16789CommercialServices&Supplies(7members) 21.02952 6.56777 2.117145 14.35527 10.45257Construction&Engineering(3members) 12.39845 1.380813 0.424954 10.27001 6.415167ElectricalEquipment(4members) 15.21028 3.558847 1.971804 13.75897 8.948594IndustrialConglomerates(4members) 22.72957 4.036055 3.294448 14.98261 13.19077Machinery(13members) 15.01671 3.034518 1.369773 11.99929 7.865562ProfessionalServices(5members) 26.96258 6.844681 3.730704 17.5443 12.39108TradingCompanies&Distributors(3members) 15.70049 5.197756 1.757799 12.34125 7.669203

Valuation

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Company P/E P/B P/S P/EBITDABoeing Co. 16.96 15.09 1.03 10.07United Parcel Service 21.92 44.01 1.63 13.843M Co. 19.9 7.22 3.04 11.32Union Pacific Corp 16.46 3.91 3.51 7.89Honeywell 17.46 4.36 1.92 11.43Lockheed Martin Corp 18.1 19.06 1.43 9.93United Technologies Corp 15.24 2.84 1.34 7.5

AVERAGES 18.01 13.78 1.99 10.28

Company to Company Analysis (Largest Peers)

Valuation

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•  Valuation multiples have widened relative to the S&P 500

•  P/CF is has the closest relative value to the market

•  Cyclical nature of industrials affects multiples

Industrials Sector

Sector Overview

Business Analysis

Economic Analysis

Financial Analysis

Valuation

Recommendation

Recommendation

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Overweight Sector

Pros: •  Increasing

margins •  Continued

revenue growth •  Relative valuation

Risks: •  Oil prices •  Consumer

confidence •  Austerity

measures

Underweight: Construction