Company Presentation :
Financials
Edouard Sevil
Manpreet Singh
Shazia Sultana
Rahul Verma
Summary
1)
Sector Overview
2)
J.P. Morgan Chase (JPM)
3)
Lincoln Financial Group (LNC)
4)
Wells Fargo (WFS)
5)
Bank of America (BAC)
1. The Financial Sector
Edouard Sevil
Financials in the S&P 500
14.2%
Financials
Other sectors
85.8%
Source:
www.standardandpoors.com
Financials in the SIM Fund
9.9%
Financials
Other sectors
90.1%
Source:Fisher College of
Business
Financials in the SIM Fund:
In the fund:
% of total assets
 J.P. Morgan:
3.95%
 Lincoln Financial Group:
2.67%
 Wells Fargo:
4.45%
Under consideration:
 Bank of America
Source: August 2011
Portfolio Appraisal
Our previous recommendations:
 Keep
Financials underweighted
 Differentiate




between industries:
Banks: neutral
Insurance: reinforce
Real-Estate: neutral
Diversified financials: neutral
What happened to the Financials
since our Nov. 1 presentation?
 The
very reason why we did not want to buy
them: they lost more than 20% of their value.
Timing is everything
+ Buy low, sell high
vs.
- Don’t catch a falling knife
How does that significant evolution
impact our recommendations?
We decided to change our recommendation
to BUY for the whole sector. This will be reflected
in the individual stocks presentations.
Bank of
America
J.P.
Morgan
Wells
Fargo
Lincoln
Financial
Group
Recommendation
BUY
BUY
HOLD
BUY
BPS
250
50
-
50
2. J.P. Morgan Chase (JPM)
Manpreet Singh
Business Overview
Stock Information:
Stock price – 30.62
Sector – Financials
Industry – Money Center Banks
Market cap – $116.29 B
Shares Outstanding – 3,977 M
Average daily volume (3
month) – 46.44 M
Dividend yield – 3.3%
Beta – 1.64
Recommendation - Buy
Analyst recommendation –
Strong Buy 19/24 , Moderate
buy 3/24 , rest hold
Analyst rating – Upgraded
Mean target – $46.8
*Sources – Yahoo Finance & Daily Finance .com
Business Overview
I year Performance
I month Performance
Business Overview
JP Morgan
Chase
Investment
Banking
Asset
Management
Credit Cards
Retail
Financial
Services
Commercial
Banking
Treasury &
Securities
Investment Banking
7%
9%
7%
7%
6%
Treasuries &
Securities
30%
Asset Management
Corporate/Private
Equity
2010 Sales by Business Line
Retail
10%
Card Services
Commercial
Banking
16%
Investment
Banking
Retail
25%
Corporate/
Private Equity
38%
6%
Card Services
Commercial
Banking
12%
Treasuries &
Securities
12%
15%
Asset
Management
Corporate/Private
Equity
2010 Earnings by Business Line
Business Overview
Strengths:
Weaknesses:
• International presence
• Strong balance sheet
• Financial strength (earnings)
Opportunities:
• Growth in Emerging Markets (IB)
Threats:
• Economic outlook in the U.S.
• E.U Debt Crisis
• Impact of new regulations
• Flattening of U.S. yield curve (FED)
• Public opinion(OWS)
DCF Analysis
Stock Valuation
Pricing Multiples & Overall Valuation
Valuation Method –
Average of pricing multiples ( P/E , P/S, P/B,P/EBITDA)
90% = .9 * 51.25 = $45
DCF 10 % = .1 *150 = 15
Total = $45 + $15= $60
Recommendation buy 50 basis points.
3. Lincoln Financial Group (LNC)
Shazia Sultana
Business Overview
Stock information
Current stock price: 19.31
Sector: financial
Industry: life insurance
Market cap: 4.93 b
Shares outstanding: 308.34 m
Average daily volume:6.5 m
Div yield:1.30%
Beta:2.90
Analyst recommendation
Analyst rating: buy 50 bps
Target price: 36.60
Current weight:2.34%
Recommended Weight:2.84%
Business Overview
Lincoln
National
Corp
Retirement
Solutions
Business
Annuities
Defined
Contributions
Insurance
solutions
Business
Group
Protection
Life Insurance
Business Overview
Annuities
19%
25%
10%
44%
Defined
Contribution
Life Insurance
Group Protection
2010 Sales by Business Line
Annuities
7%
43%
Defined
Contribution
Life Insurance
55%
14%
Group Protection
2010 Earnings by Business Line
Business Overview
Strengths:
Weaknesses:
• Diversified product portfolio
• Wide distribution network
• Strong balance sheet
• Strategic agreements
• Dividends & share repurchases
• Restricted geographical presence
• Low revenue growth
Opportunities:
Threats:
• Favorable cycle for Life and Annuity
• Regulations
• Economic outlook in the U.S.
• E.U Debt Crisis
• Impact of new regulations
• Highly-competitive industry
Valuation-Multiples
Relative to
Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Relative to S&P
500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Low
Median
Current
1.3
1.1
1.2
1.7
1.5
0.42
0.40
0.4
0.5
0.4
0.9
0.88
0.9
1.2
0.9
0.69
0.71
0.5
0.8
0.7
High
Low
Median
Current
0.86
0.83
0.6
1.3
1.3
0.17
0.14
0.2
0.2
0.2
0.65
0.62
0.4
1.0
0.9
0.39
0.38
0.2
0.4
0.6
DCF Analysis
Lincoln National Corp
LNC
Analyst: Shazia Sultana
Date: 10/17/2011
Year
2011E
Revenue
11,156
% Grow th
1,572
Operating Margin
14.1%
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
Free Cash Flow
% Growth
14.4%
8.0%
1,645
11.5%
15,344
7.3%
1,734
11.3%
16,418
7.0%
1,822
11.1%
2017E
17,403
6.0%
1,914
11.0%
2018E
18,273
5.0%
2,010
11.0%
2019E
19,096
4.5%
2,101
11.0%
2020E
19,907
4.3%
2,190
11.0%
2021E
20,704
4.0%
2,277
11.0%
(265)
(286)
(307)
(328)
(348)
(365)
(382)
(398)
(414)
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
(297)
(326)
(361)
(408)
(428)
(448)
(470)
(493)
(516)
(537)
(559)
-22.0%
-22.0%
-22.0%
-30.0%
-30.0%
-30.0%
-30.0%
-30.0%
-30.0%
-30.0%
-30.0%
1,572
1,154
1,281
1,046
1,096
1,151
1,203
1,254
1,304
316
$
$
1,908
14,307
2016E
(242)
3.5
7.6
7.3
11.4
Shares Outstanding
9.6%
2015E
-2.0%
6,963
4,914
11,877
28.87%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
14.2%
13,247
2014E
(223)
1,572
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
1,722
2013E
12.5%
4.0%
-2.0%
% Grow th
Debt
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital % of Growth
12,088
8.3%
Operating Income
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2012E
Terminal Discount Rate =
Terminal FCF Growth =
17.23
37.59
118.1%
8,892
2,912
9.22
201,554
4.4%
20%
951
999
-26.6%
11.0%
-25.8%
5.0%
4.7%
4.8%
5.0%
4.5%
4.3%
4.0%
1,154
-26.6%
1,281
11.0%
951
-25.8%
999
5.0%
1,046
4.7%
1,096
4.8%
1,151
5.0%
1,203
4.5%
1,254
4.3%
1,304
4.0%
59%
41%
100%
Terminal Value
Free Cash Yield
4.7
10.3
6.6
10.4
4.2
9.3
6.0
9.4
15,959
8.17%
Terminal P/E
12.2
Terminal EV/EBITDA
8.4
Final Valuation
Weighted Price
*Your
Target
E, S, B,
etc/Shar
e
G.
3.02
Your Target Weights
Price
(F x G)
10.8
Current #Your
Targe
t
Multi
ple
E.
F.
5
10.8
H.
32.61
0.1
3.26
1.4
1.3
0.6
0.4
1.4
1.3
32.02
39.4
44.82
51.22
0.1
0.5
4.48
25.61
6.7
9.7
3.19
3.02
21.37
29.29
0
0.1
0
2.92
36.28
Absolute
Valuation
High
Low
Median
A.
P/Forward
E
P/S
P/B
B.
13.7
C.
1.8
2
1.8
0.2
0.2
D.
P/EBITDA 35.51
1.66
6.7
3.11
P/CF
14.2
2
9.7
5
Weighted Price Per share(multiples)
P/B Multiple 80% weight =0.8 *36.28 = $29.02
DCF Valuation 20% weight=0.2*37.59 = $7.58
Final Target Price
= $36.60
Current Price
$19.31
Upside/Downside %
89%
I
J
4. Wells Fargo (WFC)
Rahul Verma
Business Overview
WFC is a diversified financial services company with
operations around the world. WFC offers a range of
financial services in over 80 different business lines. WFC
delineates three different business segments when
reporting results: Community Banking, Wholesale
Banking, and Wealth, Brokerage and Retirement.
Key Stats










Current SIM Weight: 4.06%
Current Price: 24.18
Recommendation: Buy/Hold
Industry: Diversified Banks
Market Cap: $135.09B
P/E Forward: 7.81
P/E Trailing: 9.37
Beta: 1.30
52 Week Range: $23.02 –$34.25
Div Yield: 1.90%
Analyst Opinion & Price Targets
Analysts Opinion: Buy - 25 of 33 (10 Strong Buys)
Analyst Price Target Summary
Range: $24.33-$41.00
Mean Target Price: $32.58
Median Target Price: $32.00
Business Overview
Strengths:
Weaknesses:
• Well diversified
• Growing insurance line
• Cost structure
Opportunities:
Threats:
• Growth in Emerging Markets (IB)
• Economic outlook in the U.S.
• E.U Debt Crisis
• Impact of new regulations
• Flattening of U.S. yield curve (FED)
• Public opinion(OWS)
DCF Analysis
Summary
Current
Price:
$24.18 as of
11/21/11
Close
Value:
$29.64
Upside:
22.6%
Valuation
Pricing Multiples
Absolute
Valuation
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
Low
B.
Median
C.
24.1
4.4
3.3
10.92
13.1
Current
D.
8.1
0.9
0.8
4.13
5.1
#Your
Target
Multiple
E.
13.2
3.4
2.6
5.97
10
F.
8.7
1.7
1.1
4.89
9.1
7.81
2.6
1.8
5.4
9.5
*Your Target E, Your
S, B, etc/Share Target
Price
(F x G)
G.
H.
2.81
21.95
15.05
39.13
23.04
41.47
5.9
31.86
2.81
26.70
Average Target
32.22
Overall Valuation
Valuation
Method
Current Target
Percent Weight
Target Price
Value
DCF
$29.64
25%
$ 7.41
Pricing Multiples
$32.22
75%
$24.16
(50/50 for
comparison)
Total
$30.93
$31.57
Upside from
$24.18
27.9%
30.6%
5. Bank of America (BAC)
Edouard Sevil
Stock Overview
Stock Information:
Ticker – BAC
Stock price – $5.37
Sector – Financials
Industry – Regional Banks
Market cap – $59.8 B
Average daily volume (3 m) – 293.31 M
Dividend yield – 0.7%
Beta – 2.9
Analyst opinion:
Strong Buy 5 , Buy 10 , Hold 16, Underperform 1, Sell 0
High target – $14.50
Mean target – $9.90
Low target – $6.50
My recommendation – BUY
Source:
Yahoo Finance
Business Overview
Business Overview
Business Overview
Strengths:
Weaknesses:
• Market share in Retail Banking
• Strong IB dept. (Merrill Lynch)
• New Bank of America project
• Non-performing assets (Countrywide)
• Litigation issues
• Cost structure
• Recurring impairments/losses
Opportunities:
Threats:
• Growth in Emerging Markets (IB)
• Economic outlook in the U.S.
• E.U Debt Crisis
• Impact of new regulations
• Flattening of U.S. yield curve (FED)
• Public opinion(OWS)
Business Overview
250
200
150
2006
TTM
100
50
BAC
JPM
WFS
Market Capitalization
(in billion dollars)
LNC
Profitability Analysis
14
12
10
8
ROE
6
ROA
4
2
0
-2
BAC
JPM
WFC
Return on Equity/Return on Assets
(in %, TTM)
LNC
DCF Analysis
Conservative
Assumptions
Bank of America
(Dollars in millions, except per share information; shares
in thousands)
Analyst: Edouard Sevil
Date: 11/21/2011
Year
2011E
Net interest income, FTE basis
41,222
% Grow th
Terminal Discount Rate =
Terminal FCF Growth =
2012E
44,267
7.4%
Noninterest income
52,465
54,104
93,687
98,371
% Grow th
3.1%
Revenue
% Grow th
5.0%
Provision for credit losses
13,603
Provision for credit losses as a % of net interest income
33.00%
11,067
25.00%
2013E
46,480
5.0%
56,809
5.0%
103,290
5.0%
9,296
20.00%
Total noninterest expense
78,697
77,369
Total noninterest expense as a % of noninterest income
150.00%
143.00%
135.00%
1,387
9,936
17,301
Income (loss) before taxes
EBT margin
1.5%
Income tax expense (benefit)
(208)
Tax Rate
-15.0%
10.1%
2,981
30.0%
76,693
16.8%
5,190
30.0%
2014E
48,572
4.5%
59,366
4.5%
107,938
4.5%
9,229
19.0%
62,334
105.0%
36,375
33.7%
10,913
30.0%
2015E
50,758
4.5%
62,037
4.5%
112,795
4.5%
9,136
18.0%
63,278
102.0%
40,381
35.8%
12,114
30.0%
13.0%
2.5%
2016E
52,788
4.0%
64,519
4.0%
117,307
4.0%
8,974
17.0%
64,519
100.0%
43,814
37.4%
13,144
30.0%
2017E
54,900
4.0%
67,100
4.0%
121,999
4.0%
9,058
16.5%
65,758
98.0%
47,183
38.7%
14,155
30.0%
2018E
56,821
3.5%
69,448
3.5%
126,269
3.5%
9,233
16.3%
66,670
96.0%
50,366
39.9%
15,110
30.0%
2019E
58,810
3.5%
71,879
3.5%
130,689
3.5%
9,410
16.0%
67,566
94.0%
53,713
41.1%
16,114
30.0%
2020E
60,574
3.0%
74,035
3.0%
134,609
3.0%
9,540
15.8%
68,112
92.0%
56,957
42.3%
17,087
30.0%
2021E
62,391
3.0%
76,256
3.0%
138,648
3.0%
9,671
15.5%
68,631
90.0%
60,346
43.5%
18,104
30.0%
Net Income
1,595
6,955
12,111
25,463
28,266
30,670
33,028
35,256
37,599
39,870
42,242
Preferred stock dividends
Free Cash Flow
1,100
495
1,050
5,905
900
11,211
850
24,613
800
27,466
750
29,920
700
32,328
650
34,606
600
36,999
550
39,320
500
41,742
% Grow th
1094.0%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
133,689
120,041
253,729
0.91%
53%
47%
100%
Current P/E
Projected P/E
Current EV/EBT
Projected EV/EBT
34.1
159.1
1,450.1
1,593.9
7.8
36.5
202.4
222.4
Shares Outstanding (millions)
Current Price
Implied equity value/share
Upside/(Downside) to DCF
89.9%
119.5%
11.6%
8.9%
8.0%
5.37
25.04
366%
6.9%
6.3%
Terminal Value
Free Cash Yield
4.5
21.0
116.2
127.7
10,134
$
$
7.0%
Still lead to a
366% upside
6.2%
407,486
10.24%
Terminal P/E
9.6
Terminal EV/EBITDA
39.2
Multiple Analysis
*Your
Target E,
S, B,
etc/Share
Your
Target
Price
Bank of
America
High
Low
Median
Current
#Your
Target
Multiple
P/Forward E
83
6.4
11.1
6.6
8.9
1.2
10.7
P/S
3.8
.3
3.0
.6
1.8
9.7
17.5
P/B
2.8
.1
1.8
.3
1.4
20
28
P/EBITDA
6.35
.57
4.43
.99
2.7
.7
1.9
P/CF
43.5
2.7
10.3
4.2
7.3
.8
5.8
Average target is
$12.78 (138% upside)
Source:
Thompson Reuters Baseline
Multiple Analysis
Bank of
America
Your Target
Multiple
Your Target
E, S, B,
etc/Share
Your
Target
Price
Weight
P/Forward E
8.9
1.2
10.7
15%
1.6
P/S
1.8
9.7
17.5
15%
2.6
P/B
1.4
20
28
40%
11.2
P/EBITDA
2.7
.7
1.9
15%
0.3
P/CF
7.3
.8
5.8
15%
0.9
Weighted average is
$16.6 (209% upside)
Assuming a 3-year recovery period - $3.75 increase each year:
1-year target is $9.11.
Source:
Thompson Reuters Baseline
Comparable Analysis
Bank of
America
J.P.
Morgan
Wells
Fargo
Average
P/Forward E
6.6
6.7
8.1
7.1
P/S
.6
1.2
1.6
1.1
P/B
.3
.7
1.0
0.7
P/EBITDA
.99
3.36
4.55
3.0
P/CF
4.2
5.3
7.7
5.7
Source:
Thompson Reuters Baseline
Technical Analysis
Bollinger Bands:
This is one of the most
popular technical
analysis techniques. The
closer the prices move to
the upper band, the
more overbought the
market, and the closer
the prices move to the
lower band, the more
oversold the market.
Source:
Investopedia
Thompson Reuters Baseline
Recommendation
My recommendation for Bank of America is BUY,
with a one-year price target of $9.11.
I recommend buying 2.5% to leave room to
reinforce the position in case the stock falls below
its current level in the upcoming quarters.
What questions do you have?