S&P Information Technology Sector:
Stock Presentation
Alex Rickels l Douglas Burke
July 22nd, 2015
Market Cap Weightings
Telecommunication Informati
on
Services, 2.21%
Utilities,
Materials,2.81%
Technolo
2.98%
gy,
S&P 500
Energy,
7.30%
20.09%
Consumer
Staples,
9.53%
Dividend
Receivable
s, 0.00%
Industrials,
9.96%
Financials,
16.77%
SIM
Utilities,
2.91%
Materials,
2.66%
Telecommunicati
on Services,…
Cash,
1.61%
Energy,
7.65%
Informati
on
Technolo
gy,
21.84%
Dividend
Receivable
s, 0.06%
Consumer
Staples,
8.86%
Industrials,
7.97%
17.93%
Consumer
Discretiona
ry, 12.85%
Source: Bloomberg
Health
Care,
15.51%
Consumer
Discretiona
ry, 12.61%
Health Care, 14.88%
Source: SIM June 2015 Monthly Appraisal
Industry Classification
Internet Software
& Services
• Google
• Vantiv
• Activision
5.21%
4.64%
2.18%
IT Hardware
• EMC
3.61%
• Apple
3.13%
• Qualcomm 3.07%
Semiconductors
• None
Sector Recommendation
• Even-weight to match S&P Weighting
• Currently 21.84%, Recommend 20.09%
• Opportunities
• Strong future growth prospects in cloud computing and Internet of
Things
• Continued innovation within the industry
• Risks
• Business lifecycle is unfavorable for IT Sector
• Q1 and Q2 results have yielded below consensus estimates*
* Except for Google
Stock Recommendations
Stock
AAPL
EMC
ATVI
VNTV
GOOGL
QCOM
MU
Decision
HOLD
HOLD
HOLD
HOLD
SELL
SELL
BUY
Change
0.00%
0.00%
0.00%
0.00%
-1.75%
-3.07%
3.07%
-1.75%
Current
Proposed
3.13%
3.13%
3.61%
3.61%
2.18%
2.18%
4.64%
4.64%
5.21%
3.46%
3.07%
0.00%
0.00%
3.07%
20.09%
21.84%
Holds
Apple Inc.
•
Apple Inc. is an American
multinational corporation
headquartered in Cupertino,
California, that designs, develops,
and sells consumer electronics,
computer software, online services,
and personal computers.
Stock Ticker
AAPL
Recommendation
HOLD
Current SIM %
3.13%
Recommended SIM %
3.13%
Current Stock Price
$129.60
Consensus Price Target
$150.00
SIM Price Target
$153.00
Potential Upside
18.1%
Beta
1.13
Profit Margin (ttm)
22.53%
ROE
38.37%
Forward P/E
13.17
Stock Ticker
Recommendation
•
EMC Corporation (stylized as EMC²)
is an American multinational
corporation. It offers data storage,
information security, virtualization,
analytics, cloud computing and other
products and services that enable
businesses to store, manage, protect,
and analyze data.
EMC
HOLD
Current SIM %
3.61%
Recommended SIM %
3.61%
Current Stock Price
$25.26
Consensus Price Target
$30.00
SIM Price Target
$32.00
Potential Upside
26.7%
Beta
1.19
Profit Margin (ttm)
10.47%
ROE
11.97%
Forward P/E
11.89
• Vantiv, Inc. is a U.S.-based
payment processing and
technology solutions provider
headquartered in the greater
Cincinnati, Ohio area.
Stock Ticker
VNTV
Recommendation
HOLD
Current SIM %
4.64%
Recommended SIM %
4.64%
Current Stock Price
$39.71
Consensus Price Target
$44.00
SIM Price Target
$43.00
Potential Upside
8.3%
Beta
Profit Margin (ttm)
ROE
Forward P/E
0.7
4.23%
12.31%
16.54
Stock Ticker
Recommendation
•
Activision Blizzard, Inc. is the American
holding company for Activision and
Blizzard Entertainment. In 2009,
Activision Blizzard was the world's
second-largest gaming company by
revenue after Nintendo
ATVI
HOLD
Current SIM %
2.18%
Recommended SIM %
2.18%
Current Stock Price
$25.81
Consensus Price Target
$28.00
SIM Price Target
$28.00
Potential Upside
8.5%
Beta
1.75
Profit Margin (ttm)
20.46%
ROE
13.22%
Forward P/E
17.23
Sell
Stock Ticker
Recommendation
•
•
Google is an American multinational
corporation specializing in Internet
related services and products. These
include online advertising
technologies, search, cloud
computing, and software.
Q2 earnings announcement last
Thursday beat consensus estimates
with improved revenue growth and
cost cutting measures.
GOOGL
SELL
Current SIM %
5.21%
Recommended SIM %
3.46%
Current Stock Price
$699.60
Consensus Price Target
$721.50
SIM Price Target
$741.94
Potential Upside
6.1%
Beta
0.91
Profit Margin (ttm)
21.49%
ROE
13.85%
Forward P/E
Source: Yahoo Finance
18.35
Rolling 12 Month Stock Performance
DCF Valuation (“Q2 Scenario”)
Google (GOOG)
Figures in millions, except per share data
Year
2015E
2016E
Revenue
76,093
% Grow th
Operating Income
23,814
Operating Margin
26.8%
26.7%
Interest Income
761
892
Interest % of Sales
1.0%
1.0%
Taxes
Tax Rate
Net Income
4,229
20.0%
16,915
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Grow th
4,941
20.0%
19,765
16.9%
5,859
2018E
2019E
2020E
2021E
10.50%
5.25%
2022E
2025E
2023E
2024E
89,244 102,518 116,358 130,321 144,657 160,569 176,626 192,522 206,961 220,414
17.3%
20,382
2017E
Terminal Discount Rate =
Terminal FCF Growth =
7,139
14.9%
28,219
27.5%
1,025
1.0%
5,849
20.0%
23,395
18.4%
8,406
13.5%
30,253
26.0%
1,105
1.0%
6,272
20.0%
25,087
7.2%
9,832
12.0%
33,884
26.0%
1,173
0.9%
7,011
20.0%
28,045
11.8%
11,338
11.0%
37,611
26.0%
1,230
0.9%
7,768
20.0%
31,072
10.8%
12,947
11.0%
40,142
25.0%
1,285
0.8%
8,285
20.0%
33,141
6.7%
14,772
10.0%
44,156
25.0%
1,325
0.8%
9,096
20.0%
36,385
9.8%
16,691
9.0%
48,130
25.0%
1,348
0.7%
9,896
20.0%
39,583
8.8%
18,675
7.5%
51,740
25.0%
1,345
0.7%
10,617
20.0%
42,468
7.3%
20,593
6.5%
55,103
25.0%
1,322
0.6%
11,285
20.0%
45,141
6.3%
22,041
7.7%
8.0%
8.2%
8.5%
8.7%
9.0%
9.2%
9.5%
9.7%
10.0%
10.0%
(1,539)
(1,591)
(1,606)
(1,629)
(1,694)
(1,736)
(1,606)
(1,501)
(1,540)
(1,449)
(992)
-2.0%
-1.8%
-1.6%
-1.4%
-1.3%
-1.2%
-1.0%
-0.9%
-0.8%
-0.7%
-0.5%
11,414
15.0%
9,821
13,387
15.0%
11,927
21.5%
14,353
14.0%
15,843
32.8%
16,290
14.0%
17,000
7.3%
18,245
14.0%
19,444
14.4%
19,529
13.5%
22,754
17.0%
20,874
13.0%
25,434
11.8%
21,195
12.0%
30,380
19.4%
23,103
12.0%
33,614
10.6%
22,766
11.0%
38,847
15.6%
22,041
10.0%
44,149
13.6%
Current Price
PV of Free Cash Flow/share
Net Cash/share
Implied equity value/share
Upside/(Downside) to DCF
$ 699.60
$ 677.67
$ 64.27
$ 741.94
6.1%
Relative Valuation
Google 10 Year Historical Valuations
High
P/E
P/B
P/S
P/EBITDA
Low
85.61
19.90
20.76
54.58
17.36
2.91
4.39
11.89
Average Current
33.28
34.44
5.71
4.25
8.21
6.83
22.18
21.03
Relative to S&P Software & Services Sector
High
P/E
P/B
P/S
P/EBITDA
Low
3.08
3.52
5.03
3.44
1.27
0.92
1.90
1.59
Average Current
1.62
1.48
1.29
0.91
2.42
1.74
1.88
1.56
• Qualcomm Incorporated is an
American global semiconductor
company that designs and markets
wireless telecommunications
products and services.
Stock Ticker
QCOM
Recommendation
SELL
Current SIM %
3.06%
Recommended SIM %
0.00%
Current Stock Price
$64.64
Consensus Price Target
$75.00
SIM Price Target
$64.55
Potential Upside
-0.1%
Beta
1.44
Profit Margin (ttm)
26.03%
ROE
18.81%
Forward P/E
Source: Yahoo Finance
12.71
STRENGTHS:
WEAKNESSES:
•
• Anti-trust investigations in the EU1
• Heavily reliant on smartphones
•
•
2.8% Dividend Yield with share
repurchase program
Receives royalty fees for use
of CDMA (3G) network
Used in Apple iPhones
• Intel is increasing competition
• Samsung, HTC, and Xaomi have
reported lower than forecasted
smartphone sales
• Uncertainty surrounding IoT
1. http://www.wsj.com/articles/eu-launches-antitrust-investigations-into-qualcomm-1437077887
Rolling 12 Month Stock Performance
DCF Valuation
Alex Rickels (Updated by Douglas Burke)
7/19/2015
Year
2015E
2016E
2017E
2018E
2019E
2020E
Terminal Discount Rate =
10.5%
Terminal FCF Growth =
3.5%
2021E
2022E
2023E
2024E
2025E
26,000
27,100
28,550
30,063
31,566
33,145
34,802
36,368
38,004
39,525
40,908
-1.84%
4.2%
5.4%
5.3%
5.0%
5.0%
5.0%
4.5%
4.5%
4.0%
3.5%
Operating Income
8,800
9,500
10,200
10,741
11,214
11,709
12,294
12,848
13,426
13,963
14,451
Operating Margin
33.8%
35.1%
35.7%
35.7%
35.5%
35.3%
35.3%
35.3%
35.3%
35.3%
35.3%
Interest and Other
(520)
(542)
(571)
(601)
(631)
(663)
(696)
(727)
(760)
(790)
(818)
Interest % of Sales
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
1,656
1,792
1,926
2,028
2,117
2,209
2,320
2,424
2,533
2,634
2,727
Tax Rate
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
Net Income
6,624
7,166
7,703
8,111
8,467
8,837
9,279
9,696
10,133
10,538
10,907
8.2%
7.5%
5.3%
4.4%
4.4%
5.0%
4.5%
4.5%
4.0%
3.5%
1,170
1,220
1,285
1,203
1,105
1,160
1,218
1,273
1,330
1,383
1,432
4.5%
4.5%
4.5%
4.0%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
(133)
(77)
(102)
(150)
(158)
(166)
(174)
(182)
(190)
(198)
(205)
-0.5%
-0.3%
-0.4%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
(972)
(1,044)
(981)
(1,033)
(1,085)
(1,139)
(1,196)
(1,250)
(1,306)
(1,358)
(1,432)
-3.7%
-3.9%
-3.4%
-3.4%
-3.4%
-3.4%
-3.4%
-3.4%
-3.4%
-3.4%
-3.5%
6,689
7,265
7,905
8,130
8,329
8,692
9,127
9,537
9,967
10,365
10,702
8.6%
8.8%
2.8%
2.4%
4.4%
5.0%
4.5%
4.5%
4.0%
3.3%
Revenue
% Growth
Taxes
Shares Outstanding
Current Price
$ 64.64
Implied equity value/share
$ 64.55
Upside/(Downside) to DCF
% Growth
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
1,714
-0.1%
Relative Valuation
Qualcomm 10 Year Historical Valuations
High
Low
Average Current
P/E
38.53
13.06
22.91
13.59
P/B
13.13
3.79
6.82
3.90
P/S
6.71
2.66
3.88
2.78
P/EBITDA
27.10
7.69
14.84
8.83
Relative to IT Hardware Sector
High
P/E
P/B
P/S
P/EBITDA
Low
1.79
3.12
3.17
2.06
1.10
1.47
2.61
1.26
Average Current
1.39
0.88
2.03
1.04
2.36
1.33
1.61
1.06
Buy
• Micron Technology is an American
multinational company that
designs and markets a range of
semiconductors from DRAM to
flash memory to solid state drives.
Stock Ticker
MU
Recommendation
BUY
Current SIM %
0.00%
Recommended SIM %
3.07%
Current Stock Price
$20.12
Consensus Price Target
$29.00
SIM Price Target
$26.00
Potential Upside
33.1%
Beta
1.93
Profit Margin (ttm)
21.27%
ROE
29.76%
Forward P/E
7.80%
STRENGTHS:
WEAKNESSES:
•
• Highly Cyclical Industry
• Oligopoly that could lead to price wars
• DRAM price is expected to decrease
substantially
•
•
•
•
In Growing Market of SRAM, and
Flash Memory
Still expecting under-supply of
DRAM in 2H 2015(Sundeep Bajikar,
Jefferies)
Strong Product Pipeline
Cheap on a Relative and Historic
Basis
Potential Buy-Out Candidate with no
poison pill
Current Market Trends
• SDDs and Flash
• DRAM
SDDs and Flash Expectations
Total TB Shipments
Expected TB (Millions) Shipped
1000.0
914.6
900.0
795.7
800.0
692.3
TB Shipped (Millions)
700.0
602.3
600.0
524.0
500.0
455.9
HDD
SSD
400.0
300.0
200.0
100.0
9.4
14.3
33.0
21.7
50.1
76.2
0.0
2013
2014
2015
2016
Years
2017
2018
Average Selling Price per TB
Price per TB
1200
998.86
1000
769.4
$/TB
800
578.83
600
HDD
SSD
446.05
400
345.74
271.99
200
72.52
62.19
53.8
46.98
42.05
34.3
0
2013
2014
2015
2016
Year
2017
2018
Total Market Revenue
Total Market Revenue
25.0%
40000
35000
33062
32588
33460
32524
32404
20.0%
31371
30000
Dollars (Millions)
15.0%
25000
20726
10.0%
HDD
20000
SSD
17336
5.0%
14717
15000
SDD Growth
12566
10991
10000
0.0%
9389
-5.0%
5000
-10.0%
0
2013
2014
HDD Growth
2015
2016
Year
2017
2018
DRAM Expectations
DRAM Under Supply in 2H of 2015
Source: Jefferies Analysts: Sundeep Bakikar, Mark Lipacis, Billy Kim, and Marco Chen
DRAM shift to Mobile and Servers
• Changing product mix to fit
changing demand
• May Quarter showed Micron
reducing PC exposure
• Increased in Mobile and Server
Revenue
Source: Jefferies Analysts: Sundeep Bakikar, Mark Lipacis, Billy Kim, and Marco Chen
DRAM Expected to Decrease Until 2H of 2015
Source: Jefferies Analysts: Sundeep Bakikar, Mark Lipacis, Billy Kim, and Marco Chen
New Product Pipeline
3D NAND work with Intel
• 3.5 TB Drive from Micron & Intel
Automata Processing
Automata Processing- Computing like a Brain
• Parallel Processing
• Processing on the
memory, not the CPU
• Applications in:
• Big Data
• Network Security
• Finance
• Bioinformatics
Analyst- Alex Rickels
11.5%
Terminal FCF Grow th =
3.0%
Year
2015E
Revenue
16,207
% Growth
2016E
16,380
1.1%
2017E
2018E
17,633
19,396
7.6%
2019E
21,336
2020E
22,403
10.0%
10.0%
5.00%
2021E
23,523
5.0%
2022E
24,699
2023E
25,934
5.0%
5.0%
2024E
26,712
3.0%
2025E
27,513
3.0%
Operating Income
2,917
2,948
3,527
3,879
4,267
4,481
4,705
4,940
5,187
5,342
5,503
Operating Margin
18.0%
18.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
Interest and Other
Interest % of Sales
Taxes
324
328
353
388
427
448
470
494
519
534
550
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
259
262
Tax Rate
10.0%
10.0%
Net Income
2,334
2,359
% Growth
1.1%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
Capex % of sales
Free Cash Flow
517
543
10.0%
10.0%
3,540
3,717
3,902
4,098
4,220
4,347
2,857
3,065
3,371
21.1%
10.0%
10.0%
5.0%
5.0%
5.0%
3.0%
4,927
5,075
5,503
15.0%
18.0%
18.0%
18.0%
18.0%
18.0%
18.0%
18.0%
19.0%
19.0%
20.0%
(373)
(351)
(272)
(299)
(314)
(329)
(346)
(363)
(374)
(385)
-2.3%
-2.0%
-1.4%
-1.4%
-1.4%
-1.4%
-1.4%
-1.4%
-1.4%
-1.4%
(3,610)
(3,994)
(3,833)
(4,073)
(4,481)
(4,705)
(4,940)
(5,187)
(5,446)
(5,609)
(5,503)
-22.3%
-24.4%
-21.7%
-21.0%
-21.0%
-21.0%
-21.0%
-21.0%
-21.0%
-21.0%
-20.0%
2,554
2,682
2,816
3,216
3,312
941
16,165
54%
Projected Equity Value
29,778
100%
1,847
2,211
2,432
96.4%
19.7%
10.0%
5.0%
5.0%
5.0%
14.2%
3.0%
3,962
19.6%
46%
Terminal Value
5.18%
Shares Outstanding
3.0%
4,446
13,613
Projected EV/EBITDA
5.0%
4,234
NPV of terminal value
Current EV/EBITDA
605
10.0%
4,032
-20.5%
Projected P/E
588
10.0%
3,840
1,183
Current P/E
571
10.0%
3,491
NPV of Cash Flow s
Free Cash Yield
9.8
9.7
8.0
12.8
12.6
10.4
4.1
3.7
3.3
5.4
4.9
4.3
48,009
8.25%
Terminal P/E
11.0
Terminal EV/EBITDA
4.3
1,170
Current Price
$
19.53
Implied equity value/share
$
25.45
Upside/(Dow nside) to DCF
30.3%
Debt
6,403
Cash
7,330
Cash/share
493
10.0%
3,174
% Growth
Free Cash Flow Yield
469
10.0%
2,948
0.2%
Subtract Cap Ex
427
10.0%
2,431
28
% of Sales
317
10.0%
6.26
Terminal Growth Rate
DCF Valuation
Terminal Discount Rate =
6/25/2015
$
Terminal Discount Rate
11.0%
11.5%
12.0%
25.45
0.0%
10.0%
10.5%
25.60
24.11
22.77
21.55
20.44
12.5%
19.42
13.0%
18.49
0.5%
26.36
24.77
23.34
22.05
20.88
19.81
18.84
1.0%
27.20
25.50
23.97
22.60
21.36
20.24
19.21
1.5%
28.14
26.30
24.67
23.21
21.89
20.70
19.62
2.0%
29.19
27.20
25.44
23.88
22.47
21.21
20.06
2.5%
30.39
28.22
26.31
24.62
23.12
21.77
20.55
3.0%
31.76
29.37
27.28
25.45
23.83
22.38
21.09
Relative Valuation
• Cheap on all metrics when compared to its peer sub-sector
Relative Valuation
Micron 10 Year Historical Valuations
High
Low
Average Current
P/E
565.66
4.58
52.29
6.48
P/B
2.33
0.36
1.33
1.28
P/S
3.56
0.34
1.40
1.74
P/EBITDA
37.05
1.98
7.71
4.00
Relative to Semiconductor Sector
High
P/E
P/B
P/S
P/EBITDA
Low
14.37
0.63
1.03
3.19
0.39
0.17
0.21
0.34
Average Current
2.57
0.39
0.46
0.39
0.53
0.57
0.90
0.45
Rolling 12 Month Stock Performance
Risks
• Highly Cyclical Industry
• Oligopoly that could lead to price wars
• DRAM price is expected to decrease substantially
Earnings are Cyclical
Oligopoly in DRAM Industry / DRAM Price Decreases
DRAM Market Share
120.00%
Dram Market Share (%)
100.00%
80.00%
Other
60.00%
SK Hynix
Micron
Samsung
40.00%
20.00%
0.00%
Q1-2012
Q2-2012
Q3-2012
Q4-2012
Q1-2013
Q2-2013
Q3-2013
Quarter
Q4-2013
Q1-2014
Q2-2014
Q3-2014
Q4-2014
Q1-2015
DRAM Expected to Decrease Until 2H of 2015
Source: Jefferies Analysts: Sundeep Bakikar, Mark Lipacis, Billy Kim, and Marco Chen
Recommendation
Recommendations
• Sell 307 bps QCOM from 3.07% to 0.00% (~$305,000)
• Purchase 307 bps MU from 0.00% to 3.07% (~$305,000)
• Sell 175 bps GOOGL to have IT sector become sector
neutral with S&P 500 (~$183,000)
Industry Classification
Internet Software
& Services
• ↓Google
5.21%
3.46%
• Vantiv
4.64%
• Activision 2.18%
IT Hardware
• EMC
3.61%
• Apple
3.13%
• Qualcomm 3.07%
Semiconductors
• ↑Micron
3.07%
Stock Recommendations
Stock
AAPL
EMC
ATVI
VNTV
GOOGL
QCOM
MU
Decision
HOLD
HOLD
HOLD
HOLD
SELL
SELL
BUY
Change
0.00%
0.00%
0.00%
0.00%
-1.75%
-3.07%
3.07%
-1.75%
Current
Proposed
3.13%
3.13%
3.61%
3.61%
2.18%
2.18%
4.64%
4.64%
5.21%
3.46%
3.07%
0.00%
0.00%
3.07%
20.09%
21.84%
Questions?
Analyst- Alex Rickels
Year
Revenue
2015E
245,906
70,492
73,772
2017E
258,682
5.7%
5%
78,981
2018E
271,616
5.0%
81,485
2019E
285,197
5.0%
85,559
2020E
296,605
2021E
308,469
4.00%
88,981
4.0%
92,541
2022E
320,808
2023E
333,640
4.0%
96,242
4.0%
100,092
2024E
346,986
4.0%
104,096
2025E
357,395
3.0%
107,219
Operating Margin
30.3%
30.0%
30.5%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
1,746
1,844
1,940
2,037
2,139
2,225
2,314
2,406
2,502
2,602
2,680
Taxes
Tax Rate
Net Income
0.8%
16,499
23.2%
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
0.8%
17,263
24.0%
52,248
54,665
9,310
9,836
% Growth
Add Depreciation/Amort
Current Price
$ 126.75
Value
$ 153.51
Implied Upside
21.11%
3.0%
Interest and Other
Interest % of Sales
Value
Weight
$ 143.99
0.5
$ 172.77
0.4
$ 124.08
0.1
2016E
232,750
% Growth
Operating Income
Style
DCF
WACC
REL
10.0%
Terminal FCF Growth =
4.6%
4.0%
4.0%
4.0%
(179)
-0.05%
-0.05%
(14,830)
(15,423)
(14,436)
15,014
(15,614)
(14,296)
-5.0%
-5.0%
-4.5%
(14,260)
-5.0%
-5.0%
53%
3.0%
14,296
-0.05%
(13,581)
2.5%
4.0%
13,879
-0.05%
-5.2%
2.3%
4.0%
13,346
24.0%
78,162
0.00%
(13,537)
7.3%
4.0%
12,832
24.0%
75,886
(173)
-5.3%
2.0%
24.0%
72,967
0.8%
26,376
4.0%
(12,944)
59,521
24.0%
70,161
25,608
(167)
-5.1%
58,044
24,623
0.8%
4.0%
(11,876)
56,743
23,676
0.8%
(160)
0
0
4.0%
0.8%
4.0%
0.00%
52,896
4.0%
12,339
0.00%
100%
0
61,901
64,377
4.0%
4.0%
68,396
4.5%
101,160
6.2%
47.9%
-4.5%
73,977
-26.9%
4.0%
-4.0%
77,984
5.4%
47%
Terminal Value
6.86%
Free Cash Yield
14.5
13.8
12.9
16.1
15.4
14.3
9.7
9.2
8.6
10.7
10.2
9.6
1,147,473
6.80%
Terminal P/E
14.7
Terminal EV/EBITDA
9.6
5,835
Current Price
$ 129.62
Implied equity value/share
$ 143.99
11.1%
Debt
28,987
Cash
14,489
Cash/share
4.0%
11,864
0.50%
51,857
24.0%
67,462
0.53%
840,150
Upside/(Downside) to DCF
4.0%
24.0%
64,867
0.54%
Projected Equity Value
Shares Outstanding
4.0%
5.0%
11,408
0.8%
22,765
0.94%
442,401
Projected EV/EBITDA
4.0%
10.0%
10,865
24.0%
62,373
21,889
1,358
397,749
Current EV/EBITDA
7.1%
10,347
24.0%
59,402
21,048
0.8%
1,381
NPV of terminal value
Projected P/E
24.0%
58,551
20,045
0.8%
1,338
NPV of Cash Flows
Current P/E
18,490
0.8%
2,176
% Growth
Free Cash Flow Yield
0.8%
2.48
Terminal Growth Rate
DCF Valuation
Terminal Discount Rate =
6/25/2015
Terminal Discount Rate
10.0%
10.5%
11.0%
$ 143.99
1.0%
9.0%
9.5%
11.5%
12.0%
142.76
133.88
125.99
118.95
112.62
106.90
101.71
1.5%
147.88
138.22
129.70
122.13
115.37
109.29
103.80
2.0%
153.74
143.14
133.87
125.69
118.43
111.93
106.09
2.5%
160.51
148.76
138.59
129.69
121.84
114.87
108.63
3.0%
168.40
155.25
143.99
134.23
125.68
118.15
111.45
3.5%
177.72
162.82
150.22
139.41
130.04
121.84
114.60
4.0%
188.91
171.77
157.48
145.39
135.01
126.02
118.14
Shawn Browning/Alex Rickels
9.0%
Terminal FCF Growth =
3.0%
Year
2015E
Revenue
232,750
% Growth
2016E
245,906
2017E
258,682
5.7%
Operating Income (EBIT)
70,492
73,772
5%
78,981
2018E
271,616
5.0%
81,485
2019E
285,197
5.0%
85,559
2020E
296,605
2021E
308,469
4.00%
88,981
4.0%
92,541
2022E
320,808
2023E
333,640
4.0%
96,242
4.0%
100,092
2024E
346,986
4.0%
104,096
2025E
357,395
3.0%
107,219
Operating Margin
30.3%
30.0%
30.5%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
Interest and Other
1,746
1,844
1,940
2,037
2,139
2,225
2,314
2,406
2,502
2,602
2,680
Interest % of Sales
0.8%
Taxes
16,499
Tax Rate
23.2%
EBIT(1- tax rate)
0.8%
17,263
24.0%
54,160
56,067
9,310
9,836
% Growth
3.5%
Add Depreciation/Amort
% of Sales
4.0%
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
4.0%
4.0%
10.0%
10,865
4.0%
24.0%
65,025
5.0%
11,408
4.0%
21,889
24.0%
67,626
4.0%
11,864
4.0%
(179)
-0.05%
-0.05%
(14,830)
(15,423)
(14,436)
15,014
(15,614)
(14,296)
-5.0%
-5.0%
-4.5%
(13,537)
(13,581)
(14,260)
-5.2%
-5.0%
-5.0%
58%
1,022,608
100%
0
0
64,660
67,246
4.0%
4.0%
71,380
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
4.5%
104,262
6.1%
46.1%
-4.5%
77,204
-26.0%
4.0%
-4.0%
81,307
5.3%
42%
Terminal Value
7.11%
Current P/E
3.0%
14,296
-0.05%
-5.3%
589,591
4.0%
13,879
-0.05%
(12,944)
433,017
4.0%
13,346
24.0%
81,486
0.00%
-5.1%
2.6%
4.0%
12,832
24.0%
79,113
(173)
(11,876)
4.0%
24.0%
76,070
0.8%
26,376
4.0%
0.00%
7.2%
24.0%
73,144
25,608
(167)
0.00%
1.0%
24,623
0.8%
4.0%
0.50%
62,173
23,676
0.8%
(160)
0
4.0%
0.8%
4.0%
0.53%
60,570
4.0%
12,339
0.54%
58,217
24.0%
70,331
0.94%
54,297
0.8%
22,765
1,358
NPV of terminal value
Free Cash Yield
14.0
13.5
12.6
18.9
18.2
17.0
9.7
9.2
8.6
13.0
12.4
11.6
1,395,777
5.83%
Terminal P/E
17.1
Terminal EV/EBITDA
11.6
5,835
Current Price
$
129.62
Implied equity value/share
$
175.26
Upside/(Downside) to DCF
35.2%
Debt
28,987
Cash
14,489
Cash/share
Implied Upside
7.1%
10,347
24.0%
61,928
21,048
0.8%
1,381
NPV of Cash Flows
WACC Equity Value
24.0%
60,026
20,045
0.8%
1,338
53,770
Free Cash Flow Yield
18,490
0.8%
2,176
% Growth
Projected Equity Value
0.8%
2.48
$
172.77
33.29%
Terminal Growth Rate
WACC Valuation
Terminal Discount Rate =
6/25/2015
Terminal Discount Rate
9.0%
9.5%
10.0%
$ 172.77
1.0%
8.0%
8.5%
10.5%
11.0%
168.56
156.54
146.04
136.79
128.57
121.23
114.64
1.5%
176.22
162.91
151.39
141.31
132.44
124.55
117.50
2.0%
185.16
170.26
157.50
146.45
136.78
128.26
120.69
2.5%
195.72
178.83
164.55
152.31
141.71
132.43
124.25
3.0%
208.39
188.96
172.77
159.07
147.33
137.16
128.26
3.5%
223.88
201.12
182.49
166.97
153.83
142.56
132.80
4.0%
243.25
215.98
194.16
176.30
161.40
148.80
137.98
Year
2015E
Revenue
25,609
% Growth
2016E
27,105
5.8%
Operating Income
5,177
Operating Margin
Interest and Other- net
Interest % of Sales
Taxes
5,646
2017E
2018E
28,468
31,315
5.0%
10.0%
5,532
5,480
2019E
33,820
8.0%
6,088
2020E
36,187
7.0%
6,514
2021E
38,359
6.0%
6,905
20122E
2023E
40,277
42,089
5.0%
4.5%
7,653
7,997
2024E
43,773
4.0%
8,755
2025E
45,305
3.5%
9,061
20.2%
20.8%
19.4%
17.5%
18.0%
18.0%
18.0%
19.0%
19.0%
20.0%
(354)
(384)
(420)
(462)
(499)
(534)
(566)
(594)
(621)
(646)
(669)
-1.4%
-1.4%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
1,102
Tax Rate
10.0%
3.0%
Terminal Discount Rate =
Terminal FCF Growth =
1,202
1,145
1,154
1,285
1,375
1,458
1,623
1,696
1,865
20.0%
1,930
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
Minority Interest
(205)
(271)
(285)
(313)
(338)
(362)
(384)
(403)
(421)
(438)
(453)
% Sales
-0.8%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
Net Income
3,720
% Grow th
3,981
7.0%
Add Depreciation/Amort
1,908
% of Sales
Plus/(minus) Changes WC
% of Sales
2,033
4,230
7.5%
7.5%
7.5%
(147)
(188)
(172)
-0.6%
-0.7%
-0.6%
922
922
968
Capex % of sales
3.6%
3.4%
3.4%
4,559
% Grow th
7.6%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
35,990
44,627
80,617
9.04%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
13.6
21.7
7.3
11.5
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
4,904
-16.1%
2,135
Subtract Cap Ex
Free Cash Flow
3,551
6.3%
2,349
7.5%
3,965
11.7%
2,536
7.5%
0
0.0%
1,065
3.4%
5,225
4,835
6.6%
-7.5%
4,242
7.0%
2,714
7.5%
0
0.0%
1,150
3.4%
5,352
10.7%
0
0.0%
1,230
3.4%
5,726
7.0%
4,497
6.0%
2,877
7.5%
0
0.0%
1,304
3.4%
6,070
6.0%
5,032
5,258
11.9%
4.5%
3,021
3,157
7.5%
7.5%
0
12.7
20.3
6.7
10.6
5,806
10.4%
3,283
7.5%
0
0.0%
0.0%
1,369
1,431
3.4%
3.4%
6,683
6,984
10.1%
4.5%
45%
55%
100%
0
0.0%
1,488
3.4%
7,601
8.8%
Terminal Value
11.9
19.1
6.7
10.7
23.0%
6,009
3.5%
3,398
7.5%
0
0.0%
1,540
3.4%
7,867
3.5%
115,750
Free Cash Yield
6.80%
Terminal P/E
19.3
Terminal EV/EBITDA
9.4
1,996.0
$
$
25.25
40.39
59.9%
5,494
4,388
2.20
Terminal Growth Rate
DCF Valuation
Analyst: Alex Fullerton/Alex Rickels
7/19/2015
$
40.39
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
9.0%
33.00
34.16
35.48
37.00
38.78
40.88
43.40
9.5%
31.00
31.98
33.09
34.35
35.81
37.52
39.54
Terminal Discount Rate
10.0%
10.5%
29.22
27.63
30.06
28.35
31.00
29.15
32.06
30.05
33.27
31.07
34.68
32.24
36.31
33.59
11.0%
26.21
26.82
27.51
28.28
29.15
30.13
31.25
11.5%
24.91
25.45
26.05
26.71
27.45
28.28
29.22
12.0%
23.74
24.21
24.73
25.30
25.94
26.65
27.44
Analyst: Alex Rickels
Terminal Discount Rate =
10.0%
Terminal FCF Grow th =
3.5%
8/2/2012
Year
Net Revenue
2015E
1,631,556
% Grow th
16.33%
Operating Income
704,221
Operating Margin
43.2%
Interest Expense
81,578
Interest % of Sales
5.0%
Non-Operating Expenses
32,631
% of Growth
2.00%
Taxes
168,153
Tax Rate
28.5%
Net Income
421,858
% Grow th
2016E
1,765,726
89,736
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
762,132
43.2%
88,286
2.00%
181,981
28.5%
456,549
97,115
7.0%
818,772
882,936
43.2%
43.5%
94,848
101,487
5.0%
5.0%
37,939
40,595
2.00%
2.00%
195,506
211,143
28.5%
28.5%
490,479
529,711
7.4%
8.0%
104,332
111,636
2019E
2,171,820
7.0%
944,742
43.5%
108,591
5.0%
43,436
2.00%
225,924
28.5%
566,791
7.0%
119,450
2020E
2,323,847
7.0%
1,022,493
44.0%
116,192
5.0%
46,477
2.00%
245,050
28.5%
614,774
8.5%
139,431
2021E
2,463,278
6.0%
1,083,842
44.0%
123,164
5.0%
49,266
2.00%
259,753
28.5%
651,660
6.0%
147,797
2022E
2,611,074
6.0%
1,148,873
44.0%
130,554
5.0%
52,221
2.00%
275,338
28.5%
690,760
6.0%
156,664
138,387
5.0%
55,355
2.00%
299,746
28.5%
751,995
8.9%
166,064
1,320,211
45.0%
146,690
5.0%
58,676
2.00%
317,731
28.5%
797,114
6.0%
176,028
3,109,831
6.0%
1,399,424
45.0%
155,492
5.0%
62,197
2.00%
336,795
28.5%
844,941
6.0%
186,590
6.0%
6.0%
6.0%
6.0%
6.0%
(16,992)
(26,717)
(26,131)
(20,297)
(21,718)
(23,238)
(24,633)
(26,111)
(27,677)
(29,338)
(31,098)
-1.0%
-1.5%
-1.4%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
(97,576)
(105,600)
(113,448)
(121,390)
(129,887)
(138,979)
(147,318)
(156,157)
(165,526)
(175,458)
(185,985)
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
421,347
3,540,961
41%
59%
Projected Equity Value
8,540,884
100%
455,232
499,660
8.0%
9.8%
534,636
7.0%
591,987
10.7%
627,506
6.0%
665,157
6.0%
724,856
9.0%
768,347
6.0%
Terminal Value
5.07%
Shares Outstanding
45.0%
6.0%
6.0%
4,999,923
Projected EV/EBITDA
1,245,482
2,933,803
5.5%
NPV of Cash Flow s
Current EV/EBITDA
6.0%
2025E
5.5%
NPV of terminal value
Projected P/E
2,767,739
2024E
5.5%
6.1%
Current P/E
2023E
5.5%
397,026
Free Cash Flow Yield
2,029,738
7.4%
5.0%
35,315
2018E
5.5%
% Grow th
Free Cash Yield
18.6
17.2
16.0
20.2
18.7
16.0
13.4
12.4
11.5
14.3
13.2
12.3
814,448
6.0%
12,968,512
6.28%
Terminal P/E
15.3
Terminal EV/EBITDA
10.0
200,715
Current Price 06/24/2015
$
39.03
Implied equity value/share
$
42.55
9.0%
Debt
3,061,825
Cash
239,538
Cash/share
1,896,951
8.2%
8.2%
Add Depreciation/Amort
Upside/(Dow nside) to DCF
2017E
1.19
Terminal Growth Rate
DCF Valuation
(000s)
$
Terminal Discount Rate
10.0%
10.5%
42.55
2.0%
9.0%
9.5%
11.0%
11.5%
43.50
40.34
37.59
35.16
33.01
31.10
12.0%
29.38
2.5%
45.56
42.05
39.02
36.38
34.05
31.99
30.15
3.0%
47.95
44.02
40.66
37.75
35.22
32.98
31.00
3.5%
50.78
46.32
42.55
39.33
36.54
34.10
31.96
4.0%
54.18
49.04
44.76
41.14
38.05
35.37
33.03
4.5%
58.33
52.30
47.37
43.26
39.79
36.82
34.25
5.0%
63.52
56.28
50.49
45.76
41.83
38.50
35.65
Analyst: Alex Rickels
11.0%
Terminal FCF Growth =
3.0%
(000s)
2015
Year
Revenue
2016
4,471
4,911
1,390
1,636
9.8%
% Grow th
Operating Income
2018
2017
5,544
5,280
5.0%
7.5%
1,829
1,742
2019
5,821
5.0%
1,921
2020
6,112
5.0%
2,017
2021
6,417
5.0%
2,118
2022
6,738
2023
7,008
5.0%
4.0%
2,313
2,224
2024
7,288
4.0%
2,405
2025
7,507
3.0%
2,477
33.0%
31.1%
33.3%
33.0%
33.0%
33.0%
33.0%
33.0%
33.0%
33.0%
33.0%
Interest Income
(89)
(49)
(53)
(55)
(58)
(61)
(64)
(67)
(70)
(73)
(75)
Interest % of Sales
-2.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
Operating Margin
Taxes
Tax Rate
195
238
253
266
279
293
308
323
336
350
360
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
1,106
Net Income
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
1,349
1,619
1,436
1,700
1,785
1,874
2,046
1,968
2,128
2,192
22.0%
6.5%
12.7%
5.0%
5.0%
5.0%
5.0%
4.0%
4.0%
3.0%
313
344
370
388
407
428
385
404
420
364
375
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
6.0%
6.0%
6.0%
5.0%
5.0%
(112)
(123)
(132)
(139)
(146)
(153)
(160)
(168)
(175)
(182)
(188)
% Grow th
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
Subtract Cap Ex
(106)
(116)
(107)
(113)
(118)
(124)
(257)
(270)
(280)
(292)
(300)
Capex % of sales
-2.4%
-2.4%
-2.0%
-2.0%
-2.0%
-2.0%
-4.0%
-4.0%
-4.0%
-4.0%
% of Sales
Free Cash Flow
1,201
% Grow th
21.1%
10,539
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
1,756
7.7%
12.1%
1,843
5.0%
1,936
5.0%
1,842
-4.8%
2,011
1,934
5.0%
4.0%
2,019
0.4%
-4.0%
2,079
3.0%
53%
9,429
47%
19,967
100%
Terminal Value
Free Cash Yield
17.1
14.0
13.1
18.1
14.8
13.9
10.8
9.3
8.7
11.5
9.9
9.3
26,772
7.77%
Terminal P/E
12.2
Terminal EV/EBITDA
9.2
731
Current Price
$
25.81
Implied equity value/share
$
27.32
5.8%
Debt
4,075
Cash
4,470
Cash/share
1,566
6.37%
Current P/E
Upside/(Downside) to DCF
1,454
6.11
Terminal Growth Rate
DCF Valuation
Terminal Discount Rate =
7/19/2015
$
Terminal Discount Rate
10.5%
11.0%
10.0%
27.32
1.0%
9.0%
9.5%
11.5%
12.0%
30.96
29.07
27.39
25.89
24.54
23.31
22.20
1.5%
32.06
29.99
28.18
26.56
25.12
23.82
22.65
2.0%
33.30
31.04
29.06
27.32
25.77
24.38
23.14
2.5%
34.74
32.24
30.07
28.17
26.50
25.01
23.68
3.0%
36.42
33.62
31.22
29.14
27.32
25.71
24.28
3.5%
38.41
35.23
32.54
30.24
28.24
26.49
24.95
4.0%
40.79
37.14
34.09
31.51
29.30
27.38
25.70
DCF Valuation (“Original Scenario”)
Google (GOOG)
Analyst: Douglas Burke
6/23/2015
Figures in millions, except per share data
Year
2015E
2016E
Revenue
76,093
% Grow th
Operating Income
20,339
Operating Margin
24.9%
22.8%
Interest Income
761
892
Interest % of Sales
1.0%
1.0%
Taxes
Tax Rate
Net Income
3,948
20.0%
15,792
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Grow th
4,246
20.0%
16,985
7.6%
5,859
2018E
2019E
2020E
2021E
10.50%
5.25%
2022E
2025E
2023E
2024E
89,244 102,518 116,358 131,485 147,263 163,462 179,808 195,991 210,690 224,385
17.3%
18,979
2017E
Terminal Discount Rate =
Terminal FCF Growth =
7,139
14.9%
23,414
22.8%
1,025
1.0%
4,888
20.0%
19,551
15.1%
8,406
13.5%
25,599
22.0%
1,164
1.0%
5,352
20.0%
21,410
9.5%
9,832
13.0%
28,927
22.0%
1,315
1.0%
6,048
20.0%
24,193
13.0%
11,439
12.0%
31,662
21.5%
1,473
1.0%
6,627
20.0%
26,507
9.6%
13,180
11.0%
34,327
21.0%
1,635
1.0%
7,192
20.0%
28,769
8.5%
15,038
10.0%
36,861
20.5%
1,798
1.0%
7,732
20.0%
30,927
7.5%
16,992
9.0%
39,198
20.0%
1,960
1.0%
8,232
20.0%
32,926
6.5%
19,011
7.5%
41,085
19.5%
2,107
1.0%
8,638
20.0%
34,553
4.9%
20,964
6.5%
42,633
19.0%
2,244
1.0%
8,975
20.0%
35,902
3.9%
22,438
7.7%
8.0%
8.2%
8.5%
8.7%
9.0%
9.2%
9.5%
9.7%
10.0%
10.0%
(1,539)
(1,591)
(1,606)
(1,629)
(1,709)
(1,767)
(1,635)
(1,528)
(1,568)
(1,475)
(1,010)
-2.0%
-1.8%
-1.6%
-1.4%
-1.3%
-1.2%
-1.0%
-0.9%
-0.8%
-0.7%
-0.5%
11,414
15.0%
8,698
13,387
15.0%
9,147
5.2%
14,353
14.0%
11,999
31.2%
16,290
14.0%
13,323
11.0%
17,093
13.0%
16,830
26.3%
19,144
13.0%
18,776
11.6%
19,615
12.0%
22,558
20.1%
21,577
12.0%
24,814
10.0%
21,559
11.0%
28,811
16.1%
23,176
11.0%
30,866
7.1%
22,438
10.0%
34,892
13.0%
Current Price
PV of Free Cash Flow/share
Net Cash/share
Implied equity value/share
Upside/(Downside) to DCF
$ 528.62
$ 540.71
$ 64.27
$ 604.98
14.4%