CONSUMER
DISCRETIONARY
Mike Anderson & Bingqian Lu
AGENDA
Recommendations
Industry Recap
Analysis of Stocks
Conclusion
RECOMMENDATIONS
Current Sector Weight: 12.80
Current SIM Weight: 12.61
Recommendation: Slightly Underweight*
Sector Stock Recommendations
Current Proposed
Basis
Basis
Current
Price
Target
Price
Upside
(Downside)
Recommend
2.17
63.24
66.80
5.6%
HOLD
2.58
0.00
92.76
94.20
1.6%
SELL
HOG
3.13
4.25
57.67
63.44
10.0%
BUY
Michael Kors
KORS
1.43
2.50
43.47
58.01
33.4%
BUY
Service
Corporation Intl
SCI
3.30
3.30
29.67
31.30
5.5%
HOLD
12.61
12.22
Company
Ticker
Comcast
CMCSA
2.17
Direct TV
DTV
Harley Davidson
TOTAL:
UNDERWEIGHT
Industry Recap
• Size: 2.398 T
• Status: Cyclical
• Categories: retailers, media
companies, consumer services
companies, consumer durables and
apparel companies, and
automobiles and components
companies
Performance
Securities
Con Dis
SPX
Price Change
121.66%
64.94%
Total Return
154.45%
99.33%
Difference
55.12%
ANALYSIS
KORS
HOG
DTV
Michael Kors







Company Overview
Stock Overview
Competitive Advantage
Investment thesis
Valuation
Risks & Concerns
Recommendation
Company Overview

Michael Kors sells watches, jewels,
handbags, apparels and etc by
distinguishing itself as a global luxury
lifestyle brand.

Founder: Michael Kors
Founded in 1981

North America, Europe, Asia

Two Collections: Michael Kors & Michael
Michael kors
Stock Overview
12 month stock price
• Market Cap:
$8.55B
• Shares Outstanding:
200M
100
• Dividend Yield:
0%
90
• 52 Weeks Low:
$41.52
• 52 Weeks High:
$91.79
60
• Profit Margin:
23.70%
50
• EPS:
$4.28
• Target Price:
$58.01
80
70
40
2014/7/1
2014/11/1
2015/3/1
2015/7/1
Competitive Advantage

Sales strategies:
partnership & shop-in-shops
international expansion & e-commerce

Marketing Strategies:
brand awareness & selection
price advantage
Investment Thesis
Current economic condition－unfavorable

Gucci, Prada, Burberry continuously marked down their
inventories, which forced the operating margin of entrylevel luxury products down.
Financial Analysis

Strong new store growth & above average same
store sales
Financial Analysis

Most efficient profit generator, sales per square
feet and operating margin are the highest among
its competitors
Financial Analysis

Stable on DIO growth, 8% growth from 2011 to
2015
Valuation
Target Price:
Avg: $67.99
Heavily rely on
sale revenue
Avg estimate is
high
Sensitivity Analysis
Discount Rate
Terminal Growth Rate
10.00%
10.25%
10.50%
10.75%
11.00%
11.25%
11.50%
11.75%
12.00%
3.00%
$61.75
$59.37
$57.16
$55.10
$53.17
$51.35
$49.65
$48.05
$46.53
3.25%
$63.29
$60.79
$58.46
$56.29
$54.26
$52.36
$50.58
$48.91
$47.33
3.50%
$64.95
$62.30
$59.84
$57.56
$55.43
$53.44
$51.57
$49.83
$48.18
3.75%
$66.75
$63.93
$61.33
$58.92
$56.67
$54.58
$52.63
$50.80
$49.08
4.00%
$68.69
$65.70
$62.93
$60.38
$58.01
$55.81
$53.75
$51.84
$50.04
4.25%
$70.81
$67.61
$64.67
$61.95
$59.45
$57.12
$54.96
$52.94
$51.06
4.50%
$73.11
$69.68
$66.54
$63.65
$60.99
$58.53
$56.25
$54.12
$52.14
4.75%
$75.64
$71.95
$68.58
$65.50
$62.66
$60.05
$57.63
$55.39
$53.31
5.00%
$78.41
$74.43
$70.80
$67.50
$64.47
$61.69
$59.12
$56.75
$54.55
Risks & Concerns

Foreign exchange risk
-dollar appreciate, all forward contract will expire at the
beginning of 2016 fiscal year

Strategic risk
-consumer preference

Expansion concern in Asia
-licensing issue with Michael Kors Far East Holding Ltd
Recommendation
Shares Outstanding
200,865
Current Price
$43.47
Implied equity value/share
58.01
Upside/(Downside) to DCF
33.4%
Debt
0.00
Cash
$978,922
Cash/share
4.87
Current Weight
143bps
Recommended Weight
250bps
Harley Davidson








Company Overview
Stock Overview
Investment thesis
Financial Analysis
Growth Strategy
Valuation
Risks & Concerns
Recommendation
Company Overview

Harley-Davidson, Inc. (HOG)


Harley-Davidson Motor Company


The Motorcycles & Related Products
segment designs, manufactures, and sells
at wholesale street-legal HarleyDavidson motorcycles, as well as a line of
motorcycle parts, accessories, general
merchandise, and related services.
Harley-Davidson Financial Services


Manufactures cruiser and touring
motorcycles. The company operates in
two segments, Motorcycles & Related
Products and Financial Services.
The Financial Services segment provides
wholesale and retail financing, and insurance
and insurance-related programs to dealers and
retail customers.
Founded in 1903
Stock Overview
12 month stock price
STOCK DATA
Ticker
Sector
Price (7/14/15)
52-week range
Market Cap. (M)
Shares Out. Diluted (M)
Annual Dividend
Dividend Yield
Est P/E (2015)
Est PEG (2015)
Book Value / Share
HOG
Consumer Disc
$57.67
$53- $71
$11,674.3
208.1
$1.24
2.21
14.09
1.26
$14.11
Investment Thesis

Harley-Davidson currently represents a BUY
opportunity due to the following reasons:
 Loyalty
to its customer base and brand despite
competitors discount pricing as a result of exchange
rates
 Growing customer base with a solid strategy for
growth
 A stock price that appears inexpensive
Financial Analysis





Exchange rate issues
Profit margin improvements
NOPAT growth
Stock repurchase
Future projections
Strategy for growth



“Fatten the tails”
Outreach customers and programs
Middleweight market
Valuation

Multiples:
 Industry
COMPANY
Mkt Cap (USD)
Average
29.5B
HARLEY-DAVIDSON INC
11.7B
POLARIS INDUSTRIES
9.8B
HONDA MOTOR CO LTD
58.1B
SUZUKI MOTOR CORP
18.5B
YAMAHA MOTOR CO
7.7B
BMW
71.2B
P/E ('15)
14.20
14.10
19.77
11.36
18.86
10.85
10.27
P/B
3.59
3.97
11.16
1.05
1.52
2.00
1.80
P/S
1.13
1.90
2.11
0.56
0.75
0.61
0.78
P/CF
14.89
10.77
19.99
4.99
8.86
14.87
29.86
P/EBITDA PEG ('15)
6.89
1.77
7.28
1.26
11.15
1.22
4.49
0.94
7.20
1.74
6.77
0.84
4.10
4.57
 Firm
Absolute
Valuation
Current
Target
Multiple
TGT/Current
Expected
EPS
Target Price
P/E
14.10
14.5
1.02
4.09
60.43
P/B
P/S
P/EBITDA
3.97
1.90
7.28
4
2
7.5
1.01
1.05
1.03
60.89
63.61
62.26
Multiples
HOG
RATIO
CURRENT
AVERAGE
HIGH
LOW
ABSOLUTE
P/E
14.168
16.383
42.899
2.808
P/B
3.947
4.083
6.914
.902
P/S
1.933
1.948
3.375
.326
P / EBITDA
7.556
8.968
22.931
1.523
P/E
.641
.878
2.397
.015
P/B
.775
1.391
2.628
.464
P/S
1.244
1.922
3.571
.809
P / EBITDA
.716
1.189
3.220
.341
P/E
.774
1.004
2.324
.252
P/B
1.401
1.666
2.431
.590
P/S
1.064
1.337
2.088
.468
P / EBITDA
.754
1.224
3.040
.370
S5COND
SPX
Valuation

Multiples (cont.)


DCF


Target price: $65.08
Combined:


Avg target price $61.80
$63.44 (equal weight)
Analysts (13)

Mean Target: $66
Risks & Concerns





Continued strength of U.S. dollar
Aging core demographic
Potential credit market deterioration
Competition from other motorcycle makers
Economic stalling or contraction
Recommendation
Shares Outstanding
208.1M
Current Price
$57.67
Implied equity value/share
$63.44
Upside/(Downside) to DCF
10.0%
Debt
$5.93B
Cash
$8.21M
Cash/share
$3.95
Current Weight
313bps
Recommended Weight
425bps
DTV

Recommend: Sell
 Potential
AT&T merger at $95 valuation
 Small upside (projected 1.6% return)
 No dividend
 Sunday Ticket class action suit
CONCLUSION
•
•
•
•
Underweight sector (12.22 vice 12.80)
Buy additional HOG (313bps to 425 bps)
Buy additional KORS (143 bps to 250 bps)
Sell DTV (258 bps to 0)
QUESTIONS?