Bender Trust
Research Project
Overview
Greg Francfort
October 5, 2011
1
The Bender Trust




Started by alumni David Bender
$120,000 principal
Currently worth $1,600,000
Used for scholarships
2
Greg Francfort




Rutgers undergraduate in engineering
Wharton MBA graduate
LIBOR co-founder
First Boston Corp.
 Sell-side analyst, Assoc. Research Director
 Neuberger Berman
 Portfolio Manager, Research Director
 Securities Analysis at Columbia University
3
Part I: Fundamentals
4
Summary
“There is no such thing as present tense in
performance management.”
1980-2005
S&P 500 12.5%
Average mutual fund 10%
Mutual fund investor 7.3%
5
Anheuser Busch (BUD)
$53.02
 52 week range: 49.05 – 64.77
 S&P 500: 1,156
2010A
2011E
2012E
EPS
$3.13
$3.76
$4.22
P/E
16.9
14.0
12.5
S&P EPS
$78
$85
$94
S&P P/E
14.9
11.9
10.9
Relative P/E
113%
118%
115%
6
Hewlett Packard (HPQ)
$24.72
 52 week range: 21.50 – 49.39
 S&P 500: 1,156
2010A
2011E
2012E
EPS
$3.78
$4.84
$4.76
P/E
5.0
5.1
5.2
S&P EPS
$78
$85
$94
S&P P/E
14.9
11.9
10.9
Relative P/E
34%
43%
48%
7
Company Description
 One paragraph
 What does the company do to make money?
 What products / services do they sell?
 What are the costs of production?
8
Competitive Analysis
 One page: Porters Five Forces
 Identify customers / suppliers
 What are the competitive advantages /
disadvantages? Size, market share?
 Is the business getting more or less
competitive?
 Is there a moat around the company?
 Be succinct!
9
Part II: Analysis
10
Earnings Outlook
 What are the prospects the company can
grow it’s business?
 Growth from price or volume increases?
 What is the danger of cost increases?
 Likelihood of positive or negative earnings
surprise compared to consensus estimate
of EPS for 2011?
11
Earnings Outlook
 Build a Model?
 Revenue minus expenses = profits
 Profits / shares outstanding = EPS
12
Forecast Revenue





Use 2010 as a base to forecast 2011 revenue
Project 2011 growth for the industry
What factors will drive growth?
Try to use units or volume
How might your company’s market share
change?
 Product or service price in 2011 vs. 2010?
13
Case Study: BUD
14
U.S. Beer Industry Unit Demand
 Population
 Beer consumer specific
population
 Weather
 Income
 Gasoline prices, employment
rate
 Consumer taste
 Health issues
 Mad cow for beer?
 Low carb/healthier diets




Social trends
Price of beer
Price of substitutes
Advertising by suppliers of
beer
 Advertising by suppliers of
substitutes
 Legal issues
 Stricter penalties for DWI
 Changes in legal drinking age
 New Products or Market
segments
15
Expenses
 COGS
 Variable costs: raw materials to make and
deliver beer?
 Fixed costs: depreciation
 S,G&A
 Interest expense
 Income taxes
16
Valuing the Earnings
 Calculate P/E on consensus 2011 EPS
forecast
 Relative P/E to:
 S&P500 at 1097; S&P500 EPS 2010 est $85
 S&P500 P/E on 2010 = 12.9x
 Does our Company deserve a premium or a
discount?
 Depends on growth and on risk
17
Other Valuation Tools




DCF
P/Book Value per Share
P/Asset value
EV/EBITDA
18
Recommendation
 Convincing case of earnings surprise
(positive or negative)
 Persuasively assert the stock deserves a
larger / smaller relative P/E multiple on
2009 EPS than present level
 Possible takeover potential or some other
corporate event that unlocks or reduces
value
19
Summary
 Maximum three pages
 Five minute presentation
 Only the important information
 More effort = more knowledge
20
Resources
 Yahoo! Finance
 EDGAR
 10-K, 10-Q, etc.
 Company websites
 Customers, employees, competitors,
suppliers
 Creative intellect!
21
Stock List
Marlin Business Svcs. Corp.
MRLN
Traveler’s Insurance
TRV
Oracle Corp.
ORCL
Fedex
FDX
Apple
AAPL
BP
BP
Wal-Mart Stores Inc.
WMT
Range Resources
RRC
Lowe's Companies Inc.
LOW
Viacom, Inc.
VIA-B
The Home Depot, Inc
HD
Valero Energy Corp.
VLO
Comcast Corp.
CMCSA
Boeing Co.
BA
CarMax Inc.
KMX
KapStone Packaging
KS
Occidental Petroleum Corp.
OXY
Intel
INTC
Packaging Corp. of America
AT&T
PKG
T
Cedar Fair LP
Mohawk Industries
FUN
MHK
22
Deadlines
 Part I
 Late November/Early December
 Part II
 April
23
Questions?
 gfrancfort@nb.com
 rulibor@gmail.com
24