Fall2015
SIMSECTORPRESENTATION
MATERIALS SECTOR
ChangChang,ZevMintzandCodyMizerik
AGENDA
• SectorOverview
• BusinessAnalysis
• EconomicAnalysis
• Valuation
• Recommendations
SECTOROVERVIEW
S&PWEIGHTS
Materials, 2.87%
SIMWEIGHTS
Telecommunication
Services
2.33% Utilities
2.30%
Utilities,3.10%
Telecommunication
Services,2.37%
​Other,3.49%
Materials
2.77%
Consumer
Discretionary,13.16%
ConsumerStaples,
9.90%
Information
Technology,20.37%
Energy, 7.09%
Consumer
Discretionary
12.88%
Information Technology
20.61%
ConsumerStaples
10.01%
Energy
6.51%
Industrials, 9.99%
Financials, 16.28%
HealthCare,14.87%
Industrials
9.83%
HealthCare
13.28%
BasicMaterialsMarketCap:$540.87Billion
Financials
15.99%
SectorBreakdown
Sector
Basic
Materials
Industry
Sub-Industry
Chemicals
CommodityChemicals
DiversifiedChemicals
FertilizersandAgriculturalChemicals
IndustrialGases
SpecialtyChemicals
ConstructionMaterials
ContainersandPackaging
MetalsandMining
PaperandForestProducts
ConstructionMaterials
MetalandGlassContainers
PaperPackaging
Aluminum
DiversifiedMetalsandMining
Gold
PreciousMetalsandMinerals
Silver
Steel
ForestProducts
PaperProducts
LARGESTCOMPANIESINMATERIALSSECTOR
Ticker
DOW
DD
MON
LYB
ECL
PX
APD
PPG
SHW
SIAL
Name
MarketCap(InBillions) YTDReturn
DowChemical
46.45
3.99%
EIduPontDeNemours
42.81
-18.67%
MonsantoCo
39.02
-23.19%
LyondellBasell
37.57
14.50%
Ecolab
31.84
13.19%
Praxair
28.6
-16.82%
AirProducts&Chemicals
26.79
-6.29%
PPGIndusries
23.14
-13.16%
Sherwin-Williams
20.43
-9.26%
Sigma-Aldrich
16.57
1.85%
Year-to-DatePerformance
FiveYearPerformance
BusinessCycle
TYPICAL BUSINESS CYCLE
Inflationary Pressures
Red = High
EARLY
•
•
•
•
•
MID
Activity rebounds
(GDP, IP, incomes)
Credit begins to grow
Profits grow rapidly
Policy still stimulative
Inventories low;
sales improve
•
•
•
•
•
LATE
Growth peaking
Credit growth strong
Profit growth peaks
Policy neutral
Inventories, sales grow;
equilibrium reached
•
•
•
•
•
Growth moderating
Credit tightens
Earnings under pressure
Policy contractionary
Inventories grow;
sales growth falls
RECESSION
•
•
•
•
•
Falling activity
Credit dries up
Profits decline
Policy eases
Inventories, sales fall
U.S.
RECOVERY
+
Economic Growth
–
Relative Performance
f Economically
Sensitive Assets
Green = Strong
EXPANSION
CONTRACTION
Porters5ForcesModel
Forces
Intensity
Description
Threat ofNewEntrants
Low
• Requires largeamount ofinitialcapital
• Requireslandrichwithresources
Bargaining PowerofSuppliers
Low
• Most inputs aremadebycompanies
withinsector
Bargaining PowerofBuyers
High
• Lowprice changes
• Intense pricingcompetition
ThreatofSubstitutes
Low
• Not manyalternativesforrawmaterials
Rivalry AmongExistingCompetition High
• Heavy pricecompetition
• Lowdifferentiation
Key Drivers:
1. EconomicGrowth
2. CommodityPrices
3. ExplorationandDevelopmentCosts
4. ProductionCosts
5. TaxesandRegulations
CapacityUtilization
USDurableGoods
USCommodity
Sales
2012
2013
2014
2015Est.
2016Est.
Avg.YOYgrowth
rate
Chemicals
250.73
261.8
274.62
254.89
260.10
4.18%
ConstructionMaterials
39.87
42.86
48.11
50.86
57.8
4.91%
ContainersandPackaging
221.27
203.29
205.25
209.63
216.61
4.34%
MetalsandMining
157.98
151
126.24
104.99
111.6
-6.24%
PaperandForestProducts
246.89
250.88
237.37
235.71
237.46
0.89%
Earnings
2012
2013
2014
2015Est.
2016Est.
Avg.YOYgrowth
rate
Chemicals
22.11
24.28
27.39
28.5
31.18
11.55%
ConstructionMaterials
-1.02
-0.03
2.03
4.59
7.3
49.04%
ContainersandPackaging
10.46
9.08
10.61
12.73
14.59
5.44%
MetalsandMining
10.59
7.6
7.89
3.01
5.33
-14.34%
PaperandForestProducts
9.14
11.66
12.14
15.71
17.23
16.07%
SalesandEarningGrowthRate
OperatingMarging
ProfitMargin
ROA
FCFYield
Chemicals
15.15
10.87
8.03
4.61
ConstructionMaterials
12.1
4.81
2.16
0.92
ContainersandPackaging
8.79
3.59
2.96
6.65
MetalsandMining
-12.97
-14.64
-7.26
1.16
PaperandForestProducts
8.19
3.91
3.06
7.35
ValuationAnalysis
S5MATRX(5Y)
P/E
P/B
P/S
EV/EBITDA
MarketCapBreakdown
High
Low
Average Median Current
20.64 10.89 17.07 17.53
17.56
3.86
2.04
2.87
2.81
3.48
1.65
0.96
1.33
1.31
1.50
13.18
6.46 10.24 10.01
13.17
Name
VulcanMaterialsCo
MartinMariettaMaterialsInc
Sigma-AldrichCorp
EcolabInc
Freeport-McMoRanInc
Industry
ConstructionMaterials
ConstructionMaterials
Chemicals
Chemicals
Metals&Mining
Construction
Materials
4%
Metals&
Mining
9%
Paper&
Forest
Products
4%
Chemicals
83%
P/E
Price RevYOYGrowth:Q
103.8 95.64
13.15%
42.85 153.15
37.68%
32.94 139.79
-0.57%
26.9 114.94
-5.02%
26.29 11.76
-35.38%
Asof11/2/2015
ValuationMuliptles-5yeartrend
P/E
P/B
P/S
EV/EBITDA
IndustryComparison-P/Eratio
IndustryComparison-P/Bratio
Recommendations:
ContinuetoSlightlyUnderweightascomparedtoS&P500
Underweight:
MetalsandMining
Overweight:
Chemicals
Lowinput Costs
PlantOutagesin
Europe(13%inQ2)
Inputpricesfalling
fasterthanoutput
Tightcontrolof
supply inEurope
comparedtodemand
IncreasedEarnings
Margins2015-2016