Sector Analysis
Erika
Brendan
Ying (Charlene) Zhang
Agenda
 Overview
 Financial Analysis
 Economic Analysis
 Valuation Analysis
 Business Analysis
 Recommendation
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Overview
Overview
• Size of Sector
• Market Cap (as of March 17, 2015): $3.49T
• 38 Companies
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Overview
• Products categories represented in this sector
include beverages (alcoholic and non), food,
tobacco, personal and household items.
• Demand less impacted by economic downturns
(defensive not cyclical) (low beta)
• Some firms may see positive growth in economic
downturns (discount retailers, tobacco and
alcohol)
• Low correlation to S&P 500
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Overview
• Industry Components (last updated 3/24/15 12:55p)
Consumer Staples
Last %
Change
0.00%
YTD
0.99%
1-Y
15.48%
3-Y
45.22%
5-Y
75.24%
S&P 500 ® Index
-0.22%
2.21%
12.75%
51.09%
-0.22%
Beverages
0.58%
1.03%
14.69%
40.91%
66.28%
Food & Staples Retailing
0.27%
6.52%
26.76%
85.81%
113.71%
Food Products
-0.12%
-1.74%
8.03%
45.67%
74.47%
Household Products
-0.32%
-4.82%
9.15%
33.41%
44.11%
Personal Products
1.52%
3.33%
1.27%
-0.10%
3.95%
Tobacco
-0.87%
2.38%
16.93%
22.13%
94.20%
Economic
Analysis
Valuation
Analysis
Business
Analysis
Agenda
Overview
Financial
Analysis
Recommendation
Overview
• Largest Companies in Sector (Market Cap)
• Wal-Mart ($266.30B)
• Proctor & Gamble ($225.65B)
• Coca-Cola ($176.97B)
• Pepsi Co ($139.54B)
• Philip Morris International, Inc. ($120.49B)
• CVS ($115.92B)
• British American Tobacco ($102.24B)
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Financial Analysis
Financial Analysis
Revenue Growth
50.00%
40.62%
Current
40.00%
Historical (2010)
32.17%
30.00%
Future (2016)
21.61%
22.95%
21.48%
19.13%
20.00%
8.63%
10.00%
0.00%
7.31% 7.00%
5.95%
-0.33%
1.67%
3.56%
5.93%
2.58%
2.31%
1.46%
-0.03%
-3.60%
-4.04%
-0.43%
-6.20%
-2.33%
-6.74%
-10.00%
S&P 500
Agenda
Consumer
Staples
Overview
Beverages
Financial
Analysis
Food &
Staples
Retailing
Economic
Analysis
Food
Products
Household
Products
Valuation
Analysis
Personal
Products
Business
Analysis
Tobacco
Recommendation
Financial Analysis
Earnings Growth
Current
80.00%
69.21%
Historical (2010)
Future (2016)
60.00%
41.82%
44.72%
41.59%
40.00%
31.54%
24.75%
20.00%
16.71%
11.66%
11.54%
10.86%
7.38% 9.90%
12.88%
5.56%
-0.02%
0.00%
20.36%
9.31%
2.54%
13.20%
7.37%
-7.36%
-0.67%
-0.14%
-20.00%
-40.00%
-45%
-60.00%
S&P 500
Agenda
Consumer
Staples
Overview
Beverages
Financial
Analysis
Food &
Staples
Retailing
Economic
Analysis
Food
Products
Household
Products
Valuation
Analysis
Personal
Products
Business
Analysis
Tobacco
Recommendation
Financial Analysis
Current
Major Companies
Food & Staples Household
Food
Beverages
Tobacco
Retailing
Products
Products
S&P 500
Consumer
Beverages
Staples
Food &
Staples
Retailing
Food Household Personal
Products Products Products
Tobacco
Wal-Mart
Proctor &
Gamble
Coca-Cola
Con-Agra
Philip
Morris
Operating
Margin
13.33%
9.26%
17.58%
4.7%
7.53% 16.54% 9.17%
39.71%
5.59%
16.63%
21.11%
3.67%
39.31%
Profit
Margin
9.16%
5.86%
12.04%
2.72%
4.99% 10.97% 1.83% 25.32%
3.37%
11.69%
15.43%
2.41%
25.17%
Current
Ratio
1.43
1.15
1.11
1.24
1.19
0.99
1.71
1.02
0.97
0.97
1.02
1.21
1.02
P/E Ratio
18.81
20.78
21.47
23.22
19.52
21.24
35.23
17.15
16.59
20.72
20.41
15.29
15.93
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Financial Analysis
Historical & Future CS v. S&P
CY 2008
CY 2009
CY 2010
CY 2011
CY 2012
CY 2013
CY 2014
Current
CY 2015 Est CY 2016 Est
2008-12- 2009-12- 2010-12- 2011-12- 2012-12- 2013-12- 2014-12- 2015-03- 2015-12- 2016-1212 Months Ending
31
31
31
30
31
31
31
23
31
31
Valuation Metrics
13.74
14.86
15.64
16.03
16.27
18.46
20.63
20.91
20.43
18.72
Price/Earnings
16.61
19.23
15.11
12.91
14.10
17.22
18.41
18.84
17.88
15.84
S&P 500 Index
8.90
9.31
9.97
10.25
10.40
11.68
13.49
13.54
12.23
11.47
EV/EBITDA
8.16
10.13
9.26
8.40
9.00
10.71
11.55
11.71
10.71
9.81
S&P 500 Index
3.01
2.90
3.18
2.90
3.23
2.61
2.52
2.65
2.65
2.83
Dividend Yield
3.15
2.12
1.88
2.12
2.24
1.89
1.95
1.95
2.03
2.17
S&P 500 Index
Fundamentals
Gross Margin
S&P 500 Index
Operating Margin
S&P 500 Index
Profit Margin
S&P 500 Index
Return on Assets
S&P 500 Index
Return on Equity
S&P 500 Index
Source:
Agenda
Bloomberg
29.76
30.63
30.97
30.09
29.53
29.80
29.27
29.32
30.46
31.93
32.62
32.31
32.00
32.11
32.63
32.68
9.48
9.87
9.80
9.54
9.46
9.95
9.13
9.26
8.35
9.67
13.37
13.68
13.44
13.66
13.28
13.33
5.60
6.21
6.50
6.04
6.28
6.82
6.00
5.86
2.41
6.28
8.51
8.88
8.33
9.59
9.20
9.16
7.70
8.41
8.56
7.83
8.22
8.96
7.87
7.60
8.92
9.97
0.75
1.93
2.82
3.14
2.85
3.30
3.14
3.13
3.25
3.35
19.90
22.74
22.80
21.62
22.79
25.25
22.47
21.70
24.03
25.47
4.31
10.68
14.22
14.93
13.57
15.31
14.44
14.40
15.49
15.47
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Financial Analysis
Current
Major Companies
Food & Staples
Retailing
Household
Products
Beverages
Food
Products
Tobacco
Wal-Mart
Proctor & Gamble
Coca-Cola
Con-Agra
Philip Morris
D/E Ratio
58.63
53.16
136.6
149.93
N/A
A/R Turnover
Inventory
Turnover
Asset Turnover
72.19
12.85
9.85
12.75
7.58
8.11
6.04
5.61
4.97
1.13
2.38
0.59
0.51
0.83
0.81
ROA
8.01%
6.84%
7.8%
2.00%
20.43%
ROE
20.76%
14.15%
21.77%
7.29%
N/A
R&D (% Sales)
N/A
N/A
N/A
N/A
N/A
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Financial Analysis
Historical (2010)
Major Companies
Food & Staples Retailing
Household
Products
Beverages
Food Products
Tobacco
Wal-Mart
Proctor & Gamble
Coca-Cola
Con-Agra
Philip Morris
D/E Ratio
56.88
48.56
74.77
65.46
322.24
A/R Turnover
Inventory
Turnover
Asset Turnover
101.4
14.13
8.58
14.97
8.91
9.06
5.72
5.07
5.24
1.11
2.44
0.6
0.58
1.05
0.78
ROA
8.61%
9.68%
19.51%
6.36%
20.86%
ROE
21.17%
20.58%
42.5%
15.05%
157.43%
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Financial Analysis
Consumer Staples: Net User or Generator of FCF?
CY 2008
CY 2009
CY 2010
CY 2011
CY 2012
CY 2013
CY 2014
Current
2008-12-31 2009-12-31 2010-12-31 2011-12-30 2012-12-31 2013-12-31 2014-12-31 2015-03-23
12 Months Ending
Cash Flow Items per
Share
24.31
27.28
25.77
28.78
32.98
31.85
33.10
34.01
Cash From Operations
155.37
142.43
152.01
182.43
170.06
199.57
183.31
183.97
S&P 500 Index
-10.63
-11.84
-8.26
-15.15
-12.18
-13.72
-14.90
Cash Flow From Investing -10.44
-154.64
-13.66
-70.22
-129.24
-151.62 -146.98 -155.45
-156.69
S&P 500 Index
-12.32
-15.49
-12.56
-20.67
-15.92
-18.12
-17.60
-17.22
Cash From Financing
13.38
-108.37
-78.69
-38.32
-14.51
-46.75
-33.76
-30.62
S&P 500 Index
Capital Expenditures
S&P 500 Index
Free Cash Flow
S&P 500 Index
Reference Items
Free Cash Flow Yield
S&P 500 Index
Source: Bloomberg
Agenda
CY 2015
Est
CY 2016
Est
2015-12-31 2016-12-31
31.34
34.47
171.13
189.77
-9.91
-9.12
-8.58
-10.29
-10.23
-9.98
-10.12
-10.11
-10.62
-10.79
-65.27
-48.01
-52.43
-65.57
-70.79
-71.61
-77.19
-77.49
-77.63
-77.88
14.47
18.22
17.30
18.76
22.87
21.92
23.04
23.95
20.72
23.66
89.04
93.63
99.30
116.11
97.30
128.14
106.10
106.44
93.25
111.38
5.87
6.64
5.70
5.59
6.34
4.95
4.61
4.73
9.86
8.40
7.90
9.23
6.82
6.93
5.15
5.04
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Economic Analysis
Economic Analysis
MACROECONOMIC FACTORS
 Consumer Sentiment
 Initial Jobless Claims
 US Dollar Revaluation
 Commodity Prices
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Economic Analysis
REGRESSION ANALYSIS ELATIVE TO S&P 500
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Economic Analysis
CONSUMER SENTIMENT
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Economic Analysis
INITIAL JOBLESS CLAIMS
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Economic Analysis
US DOLLAR REVALUATION
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Economic Analysis
US DOLLAR REVALUATION CONT.
 Trailing Returns of US Dollar
Total Returns
Agenda
1 Month
3 Month
6 Month
USD/Euro
-3.87%
-10.55%
-14.52%
JPY/USD
0.76%
-0.57%
9.52%
USD/GBP
-4.25%
-4.45%
-8.97%
RUB/USD
-5.41%
9.57%
51.56%
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Economic Analysis
COMMODITY PRICES
 Bloomberg Commodity Index
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Valuation Analysis
Valuation Analysis
Agenda
Overview
S&P 500
High
Low
Median Average Current
P/E
19.12
11.86
15.48
15.62
18.78
P/B
2.91
1.78
2.25
2.32
2.90
P/S
1.85
1.10
1.39
1.45
1.84
P/EBITDA
9.99
5.70
7.23
7.71
9.92
P/FCF
11.51
6.41
8.65
8.68
11.44
Numbers are based on trailing 5 years
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Valuation Analysis
Consumer Staples
High
Low Median Average Current
P/E
21.50
14.02 16.83
17.19
20.84
P/B
5.52
3.11
3.95
4.03
5.41
P/S
1.41
0.91
1.08
1.12
1.38
P/EBITDA
12.36
7.42
9.10
9.32
12.06
P/FCF
15.63
9.53 12.12
12.37
14.83
Numbers are based on trailing 5 years
Relative to S&P 500 High
Low Median Average Current
P/E
1.12
1.18
1.09
1.11
1.10
P/B
1.90
1.75
1.76
1.87
1.74
P/S
0.76
0.83
0.78
0.75
0.77
P/EBITDA
1.24
1.30
1.26
1.22
1.21
P/FCF
1.36
1.49
1.40
1.30
1.43
Numbers are based on trailing 5 years
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Valuation Analysis
Industry Comparison
Consumer Staples
Food Staples & Retailing
Food Beverage & Tobacco
Household & Personal Products
Agenda
Overview
1 Month
-0.96%
2.22%
-2.61%
-0.58%
Financial
Analysis
3 Month
YTD
-0.45%
5.93%
-1.22%
-5.91%
Economic
Analysis
1.52%
6.92%
1.08%
-3.71%
1 Year
18.74%
29.45%
17.23%
10.55%
Valuation
Analysis
Price to
Earnings
20.84
23.25
19.51
21.51
Price to
Sales
1.38
0.65
2.21
2.81
Business
Analysis
Dividend
Yield
2.66%
2.02%
2.94%
2.76%
Recommendation
Business Analysis
Business Analysis
-- US Business Cycle
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Business Analysis
-- Business Cycle Sensitivity
• Consumer Staples – Defensive
Sector
• Constant Demand
• Sector Sensitivity Breakdown:
 Beverages: low
 Food & Staples Retailing: low
 Household Products: low
 Tobacco: low
 Food Products: low/ moderate
 Personal Products: moderate
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Business Analysis
-- Business Cycle Sensitivity
Companies
Ticker
Industry
Beta
Procter & Gamble
PG
Personal Products
0.82
Coca Cola
KO
Beverages-Soft Drinks
0.81
Philip Morris
PM
Cigarettes
1.03
Anheuser Busch
BUD
Beverages-Brewers
1.16
AmBev
ABEV
Beverages-Brewers
N/A
PepsiCo
PEP
Beverages-Soft Drinks
0.59
Diageo
DEO
Beverages-Wineries &
Distillers
0.88
CVS Caremark
CVS
Health Care Plans
0.96
Altria
MO
Cigarettes
0.66
Colgate-Palmolive
CL
Personal Products
0.82
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Business Analysis
-- Growth Drivers
Demand – People cannot cut consumer staples
Supply – Little room to increase price
•
•
•
•
•
Reducing Cost
Innovation
Shifting focus on “Healthy and Wellness”
Divestitures and Restructuring Initiatives
Acquisition and Strategic Partnerships
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Profitability and Pricing
-- Five Force Power Model
Threats of Potential
Entrants (Moderate)
Intensity of
Rivalry within
the Industry
(High)
Bargaining Power of
Suppliers (Low)
Bargaining Power of
Buyers (High)
Threats of Substitute
Products (Low)
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Profitability and Pricing
-- Five Force Power Model
 Bargaining Power of Buyers – High





Price Sensitivity: High
Brand Loyalty: Low
Switching Costs: Low
Retailer Power: High
Quality Demand: Increasing
 Bargaining Power of Suppliers – Low
 Quantity of Suppliers: High
 Raw Material Price Flexibility: Low
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Profitability and Pricing
-- Five Force Power Model
 Threats of Potential Entrants – Moderate




Economies of Scale: Moderate
R&D: Moderate
Capital Requirement: Moderate
Access to Distribution Channels: Low
 Threats of Substitute Products – Low
 Demand Consistent: High
 Intensity of Rivalry within the Industry – High
 Diverse Competitor
 Products difference: Low
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation
Recommendation
Recommendation
SIM Portfolio
S&P 500 Index
Consumer Staples: 9.32%
Consumer Staples: 9.80%
SIM Portfolio – under weight compared to S&P 500
• Strong dollar currency
• Declining global economy
Agenda
Overview
Financial
Analysis
Economic
Analysis
Valuation
Analysis
Business
Analysis
Recommendation