friday september 13 th, 2013 2 nd meeting of fall semester lafayette college investment club
TRANSCRIPT
Announcements
• Finance Night – October 17th • Opportunity to network with successful
Lafayette Alumni
• Speaker Friday November 8th 2013• Scott Littlejohn • Lafayette, AB, Economics, 1984 • NYU Stern, MBA in Finance, 1991 [CPA - NY]
Meeting Agenda
1) Market Update by Othman Guennoun and Ryan McCormick
2) Waste to Energy Educational presentation by Stacey-Ann Pearson (Engineering Major)
3) Buy Presentation Expedia (EXPE)
Twitter Files for IPO
• Twitter has submitted S-1 form to begin IPO “initial public offering”
• IPO = Stock Market Launch • Private company Public company• Anyone can buy shares of the company
FED TAPERING
• Investors predict that Fed officials will reduce 85 billion a month bond buying at September 17th-18th meeting.
• Prediction based on the fact that Ben Bernanke will be holding a press conference on Sept 19th, after meeting (No press conference scheduled after October meeting).
• Bond buying by FED also referred to as quantitative easing (QE) has allowed the long term interest rates to remain low, encouraging investors to invest a lot more. EXAMPLE: The 10 year Treasury note’s yield which fell to 2.936%
• Fed official Richard Fisher (Dallas Federal Reserve Bank president): “There is an expectation that we will act in September…” (against program, doesn’t think it does any good.
• Proposed course of action by several Fed officials: * Reduce monthly bond purchases by a small amount.
Maybe by 10 billion (from 85 billion to 75 billion)
Watch results after action: Job market improvementInflation rate improvement
• Nonfarm payroll figures not as high as expected (169,000)– Possible reason for Fed not to taper
“Today’s data, in combination with Syrian uncertainties are likely to keep the US Fed on the sidelines for now” Douglas Borthwick – Chapdelaine Foreign Exchange NYC
APPLE’s new iPhones
• Apple (AAPL) reveals two new iPhones • iPhone 5C starting at $99 • iPhone 5S --- fingerprint scanner and better
camera• AAPL shares trade down 2% after
announcement.
Dow Jones Industrial Average Drops 3 Companies.
• Alcoa (AA), Hewlett-Packard (HPQ), and Bank of America (BAC) dropped
• Replaced by Visa (V), Goldman Sachs (GS), and Nike (NKE)
• Replaced because of low stock price of existing companies
• Change effective Sept 20th at Market Close.
Walt Disney Co.
• Walt Disney Co. stock (DIS) rose 2.5% yesterday after announcement of buying back $8 billion worth of shares.
• Usually buyback at a higher than market price• Shows they have a lot of cash to pay back
investors --- more investors interested as a result.
What is waste-to-energy technology?
• A form of clean energy• Conversion of non-recyclable waste
materials into electricity, heat or fuel
• Turning garbage into electricity!
Challenges with waste-to-energy:
• High initial cost• Negative image (pollutants, emissions),
such as dioxins
Advantages of waste-to-energy:Advantages of waste-to-energy:Indefinite supply of wasteReduces need for ‘dirty coal’ – cleans up the
earthReduces waste volume of landfill
Energy sector is huge, but why?
What are some of the uses of energy in USA?
ElectricityTransportationIndustrialResidentialCommercial
Energy market in US compared to some other countries:
1 American consumes as much as:• 2 English• 3 Japanese• 6 Mexicans• 13 Chinese• 31 Indians• 307 Tanzanians
Washington State University
Related Investment club holdings
• ExxonMobil• Chevron• Dominion Resources• Denbury Resources
Generated revenue for big players > $175Billion, 2010
Projected effects of WtE on sector:
• WtE can be expected to cut into the coal share
• Pass solar, wind and geothermal energy in renewable sources
• Put pressure on crude oil companies with small market share
How is it related to LIC portfolio?
ExxonMobilChevronDenbury
• The largest sources for these three are oil and natural gas
Dominion Resources • Revenue from
electricity generation and natural gas sale
• Electricity generated primarily from coal (46%) and nuclear (41%)
• $12B plan to improve and explore oil & gas
How is it related to LIC portfolio?
Denbury Resources• Oil and natural gas
company• Devoted to oil, gas
market – investment in enhanced oil recovery
• Focused on increasing value of oil, gas property
Dominion Resources • Revenue from
electricity generation and natural gas sale
• Electricity generated primarily from coal (46%) and nuclear (41%)
• $12B plan to improve current infras. to and explore oil & gas
Expedia Company Overview
• Market Cap: 7 Billion Last Sale: 51.18 • Based on gross bookings, Expedia Inc. is the
worlds largest online travel agent (OTA), operating a portfolio of websites.
• Hotels.com, Hotwire, Trivago (Europe), Elong• The Expedia Brand is one of the most well-
known and valuable brands in the travel industry.
Stock Got Absolutely Whacked• On July 26th, Expedia reported a poor Q2 missing on
both EBITDA and Revenue.• Revised Guidance to mid-single digit EBITDA growth
and cited headwinds with competition.• Management failed to mention this to investors
resulting in a “hate sale”, reducing the market cap of the company by nearly 3 billion (stock down 30%).
• Company toured the street talked up back half of year in June (margin story).
Why Now (VALUE)• 1) Managements ability to guide the street going
forward is a one time fixable issue, they have set the bar considerably low (single digit EBITDA GROWTH)
• 2) The Stock Trades at a steep discount to its competitors, 7.5x EBITDA, and 14x Forward Earnings.
• 3) Nothing is fundamentally wrong with the company, they are a brand player in a growing market with investments in MOBILE, ETP PROGRAM, and One time COSTS.
Reason #1
• Management is not in the business of losing money, they are compensated based on growth, if they fail to guide they lose money.– JOHN MALONE LIBERTY MEDIA (12% STAKE)
• They have set their forward guidance to mid single digit EBITDA growth (historically mid-teens). This is a VERY low bar.
• Guiding going forward is fixable and management is credible (spoke with PM, trader, analyst).
Reason #2
• On July 26th, EXPE traded 20x earnings and 12x Ebitda. – Currently trades at a steep discount to those levels.
• Priceline (main comp), trades 24 times earnings and 14x Ebitda
• Orbitz (2nd Main comp), trades 23 times earnings, and 15x Ebitda.
• STEEP discount to comps (hence value)
Reason #3
• The reason for the miss was considerable investments into international companies ELONG and Trivago.– Elong is a Chinese search company (second largest),
a much needed diversification in a growing market.– Trivago is essential as Expedia is only a 22% market
share holder in Europe, also a growing market.
• These Investment Costs were front half, back half will be revenue drivers.
Growth Going Forward
• ETP Program – Drives Conversion, option to pay at hotel or online (Merchant Program Revolutionary).
• Mobile APP – By far the largest investor in mobile growth (50 M app users globally), industry moving that direction.
• International Growth – Acquisition of Trivago will prove to be a one time cost and a great investment.
THE RISK STORY
• The online travel business and travel demand in general is linked to the economy. The global economy deteriorated rapidly when many of the world’s major economies fell into recession.
• High unemployment at 7.5%, limited credit availability and a cautious consumer may hinder economic recovery.
• Management Fails to Guide well, and they miss Q3.