consumer discretionary joshua anderson kunal arora branyan booth joseph chandraraj
TRANSCRIPT
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Consumer Discretionary
Joshua Anderson
Kunal Arora
Branyan Booth
Joseph Chandraraj
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Agenda
• Sector Recommendation Recap
• Stock Selected Overview
• Financial Analysis
• Valuation Analysis
• Stock Recommendation
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(07/31/09) S&P 500 Weight SIM Weight +/-
Consumer Discretionary 9.11% 7.19% -1.92%
Consumer Staples 11.81% 11.65% -0.16%
Energy 12.04% 10.74% -1.31%
Financials 13.86% 8.93% -4.93%
Health Care 13.73% 13.30% -0.43%
Industrials 9.98% 12.37% 2.39%
Information Technology 18.72% 20.41% 1.69%
Materials 3.40% 4.98% 1.58%
Telecommunication Services 3.41% 3.39% -0.02%
Utilities 3.94% 3.61% -0.34%
Cash 0.00% 3.38% 3.38%
Sector Allocation Overview
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SIM Current Stock Holdings
SecurityMkt Price (07/31/09)
Mkt Value(07/31/09)
Unrealized Gain/Loss
Price Target* Upside*
%age Portfolio (07/31/09)
%age Sector
(07/31/09)
Aéropostale 36.40 $150,150 $998 $38.05 4.53% 0.87% 12.09%
Best Buy 37.37 $300,642 ($86,982) $44.00 17.74% 1.74% 24.20%
Comcast 14.86 $389,332 ($41,341) $19.05 28.20% 2.25% 31.34%
GameStop 21.89 $139,002 ($21,751) $29.11 32.98% 0.80% 11.19%
McDonalds 55.08 $263,282 $2,116 $57.04 3.55% 1.52% 21.19%
Total 7.18% 100.00%
* Price Target: DCF analysis except Comcast from Yahoo Finance
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Sector Recommendation – Recap
View Reason
Business Slightly Positive Mature, Low growth but global expansion can open new opportunities
Economic Negative Disposable Income Consumer SpendingSaving Rate Unemployment
Financial Negative Revenue growthMargins
Valuation Negative Over valued high P/E ratios
Recommendation: Hold the Underweight Position at 150bps
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Stock Screening
• Consumer Discretionary Universe – 822– Price-to-Forward Earnings Below S&P 500– EBITDA margins above industry and sector– Net debt to Assets below 50%
• Stock Screening Results - 44– Review of Fundamentals
• In Depth Analysis – 4– Coach, Gymboree, Hasbro, GameStop
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DCF ValuationsCompany Current Price
(08/04/09)Target Price Upside
Coach $29.31 $34.44 17.5%
Gymboree $39.87 $42.14 5.7%
Hasbro $26.37 $19.65 (25.6%)
GameStop $24.42 $29.11 19.2%
Aéropostale $36.21 $38.05 5.1%
McDonalds $55.01 $57.04 3.7%
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Aéropostale in the SIM portfolio
• ARO outperformed the sector for most of the quarter
• ARO steadily reducing cash conversion cycle
• High revenue growth, competitive margins
• No long-term debt, average lease shorter
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Aéropostale Now
• Lots of Press for increasing same-store sales for June
• P/S a little high, Forward P/E a little low, all others right on target
• Margins and Cash Flow/Share as high as ever
• Share buybacks increasingly important to meeting consensus forecasts
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Aéropostale’s Future
• Averaged 17% revenue growth over the last 5 years. How quickly will it fall?
• Will PS from Aéropostale cannibalize Aéropostale’s sales or generate synergies between the brands?
• Has Aéropostale’s management learned from the failed Jimmy’Z experiment?
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Coach Overview
• Designs & markets gifts for men & women, founded in 1941
• Primary products: handbags, footwear, wearables, business cases,
sunwear, watches, travel bags, and fragrance.
• Sells via company-operated stores, internet, catalog, and indirect
channels, such as department stores
• 324 retail stores & 106 factory stores in North America; 155
locations in Japan.
• 2009 Revenue $3.23 billion (2% increase from ‘08)
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Coach –Valuations (DCF)DCF Valuation:
-Current Price: $29.28; Target Price: $34.44; Upside: 17.6%
Key Assumptions:- 3 year revenue growth: 14%
- 5 year historical growth rate: 21%- Estimated long term growth rate 15%- China sales up in double digits, plan to open 15 stores this year and 50 stores over next 5 years- New Men’s store in Japan
-Terminal growth rate: 4.5%-Discount rate: 11%
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Coach - Absolute Valuation
(7/31/09 Price 29.59) High Low Median CurrentTarget
Multiple
Target E,B,CF
per shareTarget Price
P/FE 30.0 7.9 22.9 15.3 19.1 $1.22 $23.30
P/B 14.1 3.1 10.3 5.9 8.1 $4.75 $38.51
P/S 8.2 1.5 6.5 2.8 4.65 $8.63 $40.15
P/CF 36.5 5.8 25.8 12.0 18.9 $1.22 $22.99
Average Target Price: $31.24
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Coach - P/FE Relative to S&P500
Median 1.47
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Coach - P/FE Relative to Sector
Median 1.21
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Coach – P/S Ratio (Absolute)
Median 5.3
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Coach Recommendations
View Reason
Business Positive
- Strong market position and brand
- Robust Financial Performance
- Strong product portfolio
Financial Positive- Revenue, EPS, are going up relative to
consumer Discretionary
Valuation Positive- Target Price $33.80 (80/20 weight to
DCF), 15.5% upside and 1% div yield
Recommendation: Buy
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Action Recommendation – Within Sector
Current Weight
In SIM Portfolio
Proposed Weight
In SIM PortfolioProposed Change
Aéropostale 0.87% 0% (0.87%)
Best Buy 1.74% 1.74% 0%
Comcast 2.25% 2.25% 0%
GameStop 0.80% 1.10% 0.30%
McDonalds 1.52% 1.22% (0.30%)
Coach 0% 0.87% 0.87%
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Questions?