STOCK ANALYSISINDUSTRIALS SECTOR
Gavin Smith
Fan Yang
AGENDA
Overview of Industrials
 Review of Current SIM Holdings
 Recommendations
 Conclusion

Industrials Overview
General
Building
Materials
8%
Residential
Construction
2%
0%
Aerospace/Def
ense - Major
Diversified
20%
Aerospace/Defense Major Diversified
Aerospace/Defense
Products & Services
Cement
Diversified Machinery
Farm & Construction
Machinery
General Building
Materials
General Contractors
Farm &
Construction
Machinery
7%
Diversified
Machinery
53%
Total Market Cap: $79,933.8 Billion
Heavy Construction
Industrial Electrical
Equipment
Industrial Equipment &
Components
Lumber, Wood
Production
SIM Portfolio Weights
Sector
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Cash
Dividend Receivables
S&P 500 Weight
SIM Weight
+/-
12.46%
14.33%
1.87%
10.09%
8.47%
-1.62%
10.49%
14.39%
3.90%
16.30%
13.48%
-2.82%
12.97%
11.90%
-1.07%
10.73%
8.95%
-1.78%
17.89%
19.10%
1.21%
3.51%
2.90%
-0.61%
2.42%
2.11%
-0.31%
3.14%
3.84%
0.70%
0.00%
0.49%
0.49%
0.00%
0.05%
0.05%
Current SIM Holdings and
Industrials Team Recommendations
Company
Current SIM
Total：
Current SIM
Allocation
Buy/Sell/Hold
Recommendation
Recommended
SIM Allocation
431 bps
SELL
0 bps
462 bps
HOLD
462 bps
0 bps
BUY
250 bps
0 bps
Don’t Buy
0 bps
893 bps
712 bps
Fluor Corporation (FLR)


Company Overview:
Fluor executes complex engineering, procurement,
construction and maintenance (EPCM) projects for
commercial and government clients in remote and
challenging locations around the world.
Segments:
◦
◦
◦
◦
◦
Government
7%
Global
Services
4%
Oil and Gas
Industrial and Infrastructure
Government Construction Services
Global Services
Industrial &
Infrastructure
Power
38%
Power
4%
2012
Oil & Gas
47%
Company Data
Industry: Heavy Construction
 Market Cap: $12.72B
 Current Stock Price: $77.85
 Trailing P/E: 25.80
 Beta: 1.93
 52 Week Range: $51.09-78.23

10-Year Performance
S&P 500
FLR
2000
100
1800
90
1600
80
1400
70
1200
60
1000
50
800
40
600
30
400
20
200
10
0
11/24/2003
0
11/24/2004
11/24/2005
11/24/2006
11/24/2007
11/24/2008
11/24/2009
11/24/2010
11/24/2011
11/24/2012
Drivers

Demand & Supply
Gas & Oil
Mining

Government Spending
Defense
Transportation

Unemployment Rate

Capital Utilization
Ratio Valuation
Year
DCF
Revenue
2013E
28,964,265
% Growth
1,199,818
Operating Margin
4.1%
Interest
Interest % of Sales
4.5%
(526)
-0.04%
0.00%
26.0%
Net Income
1,356,253
(12,092)
308,809
Tax Rate
878,917
% Growth
Add Depreciation/Amort240,403
2015E
2016E
30,122,835 31,267,503 32,361,866
4.0%
Operating Income
Taxes
2014E
352,489
26.0%
1,003,238
3.8%
1,517,227
4.9%
8,834
0.03%
396,776
26.0%
1,129,285
3.5%
1,566,314
4.8%
9,709
0.03%
409,766
26.0%
1,166,257
2017E
33,494,531
3.5%
1,621,135
4.8%
10,048
0.03%
424,108
26.0%
1,207,076
2018E
34,666,840
3.5%
1,677,875
4.8%
10,400
0.03%
438,952
26.0%
1,249,324
2019E
2020E
35,880,179 37,135,985
3.5%
1,736,601
4.8%
10,764
0.03%
454,315
26.0%
1,293,050
3.5%
1,797,382
4.8%
11,141
0.03%
470,216
26.0%
1,338,307
2021E
38,435,745
3.5%
1,860,290
4.8%
11,531
0.03%
486,673
26.0%
1,385,147
2022E
39,780,996
3.5%
1,925,400
4.8%
11,934
0.03%
503,707
26.0%
1,433,628
2023E
41,173,331
3.5%
1,992,789
4.8%
12,352
0.03%
521,337
26.0%
1,483,804
14.1%
12.6%
3.3%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
378,795
250,020
259,520
268,603
278,005
287,735
297,805
341,651
353,609
365,985
0.8%
0.8%
0.8%
0.8%
0.8%
0.8%
0.8%
0.9%
0.9%
0.9%
0.9%
Plus/(minus) Changes WC
-75,026
-88,399
-49,871
-32,362
-33,495
-34,667
-35,880
-37,136
-38,436
-39,781
-41,173
% of Sales
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
-0.3%
-0.3%
-0.2%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
333,089
400,634
412,731
307,438
318,198
329,335
340,862
341,651
353,609
365,985
378,795
1.2%
1.3%
1.3%
1.0%
1.0%
1.0%
1.0%
0.9%
0.9%
0.9%
0.9%
711,205
764,225
926,203
1,095,061
1,133,388
1,173,057
1,214,114
1,301,171
1,346,712
1,393,847
1,442,631
7.5%
21.2%
18.2%
3.5%
3.5%
3.5%
7.2%
3.5%
3.5%
3.5%
% Growth
NPV of Cash Flows 6,752,684
NPV of terminal value7,859,137
Projected Equity Value
14,611,821
Free Cash Flow Yield
5.42%
46%
54%
100%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
13.1
14.6
7.2
8.1
Shares Outstanding
14.9
16.6
8.0
9.0
168,491
Current Price
$
77.85
Implied equity value/share
$
86.72
Upside/(Downside) to DCF
11.4%
Debt
Cash
Cash/share
540,997
2,154,541
12.79
Terminal Value 21,330,332
Free Cash Yield
11.6
12.9
6.5
7.3
6.76%
Terminal P/E
14.4
Terminal EV/EBITDA
8.3
Sensitivity Analysis of Price
$
86.72
2.25%
2.50%
2.75%
3.00%
3.25%
3.50%
3.75%
4.00%
4.25%
4.50%
10.00%
$ 80.62
$ 82.87
$ 85.27
$ 87.85
$ 90.62
$ 93.60
$ 96.82
$100.30
$104.10
$108.23
10.25%
$ 78.01
$ 80.10
$ 82.34
$ 84.72
$ 87.28
$ 90.03
$ 92.99
$ 96.19
$ 99.65
$ 103.42
10.50%
$ 75.55
$ 77.51
$ 79.59
$ 81.81
$ 84.18
$ 86.72
$ 89.45
$ 92.39
$ 95.57
$ 99.01
$
$
$
$
$
$
$
$
$
$
10.75%
73.24
75.07
77.01
79.08
81.28
83.64
86.17
88.88
91.80
94.95
$
$
$
$
$
$
$
$
$
$
11.00%
71.07
72.78
74.60
76.52
78.58
80.77
83.11
85.61
88.31
91.21
$
$
$
$
$
$
$
$
$
$
11.25%
69.02
70.62
72.32
74.12
76.04
78.08
80.25
82.58
85.07
87.74
$
$
$
$
$
$
$
$
$
$
11.50%
67.07
68.58
70.18
71.86
73.65
75.56
77.58
79.74
82.05
84.53
Recommendation
Mean Target:
81.90
Median Target:
82.00
High Target:
90.00
Low Target:
70.00
No. of Brokers:
21
DCF
P/Forward E
86.72
92.93
P/S
74.98
P/B
79.02
P/EBITDA
78.19
P/CF
67.69
Average Price:
$81.46
Recommendation:
HOLD
Opportunity & Risks

Opportunity
◦ Increasing demand in energy such as Oil, Natural Gas and
Nuclear Energy
◦ Increasing amount of government spending
◦ Continuously contracts of new awards are signed in recent
months

Risks





Gloomy prospect of mining industry
Intense Competition in each segment
Decrease of need capital in LOGCAP program will
radically cut down revenue in Government Segment
Uncertainty about foreign economic and political issues
Cyclical to the performance of overall economic condition
Precision Castparts

Company Overview：
◦ Precision Castparts is the world leader in structural
investment casting, forged components, and airfoil
casting for aircraft engines and industrial gas turbines.
Airbus, Boeing, GE, Rolls-Royce, and many other leading
manufacturers depend on PCC for critical airframe,
engine, power generation, medical and general industrial
general
industrial
components.
17%

Segments



Aerospace
Power
General Industrial and Others
power
21%
2012
aerospace
62%
Company Data
Industry: Industrial Goods
 Market Cap: $36.11B
 Current Stock Price: $248.15
 Trailing P/E: 22.62
 Beta: 0.33
 52 Week Range: $171.00 – 263.52

10-Year Performance
S&P 500
2000
PCP
300
1800
1600
1400
250
200
1200
1000
150
800
600
400
100
50
200
0
0
Drivers
Frequent external acquisitions
 Price of Raw Material

◦ Nickel
◦ Titanium
PMI
 Aerospace Industry Sales

Ratio Valuation
DCF
Year
Revenue
2013E
2014E
2015E
10,011
11,261
12,330
12.5%
9.5%
% Growth
Operating Income
2,715
Operating Margin
27.1%
Interest
Interest % of Sales
Taxes
Tax Rate
28.5%
% of Sales
Subtract Cap Ex
29.0%
6.0%
3,970
28.0%
14,889
5.0%
4,020
27.0%
15,634
5.0%
4,065
26.0%
2020E
16,415
5.0%
4,268
26.0%
2021E
17,236
2022E
18,098
5.0%
4,481
5.0%
4,705
26.0%
26.0%
2023E
19,003
5.0%
4,941
26.0%
(40)
(46)
(47)
(50)
(52)
(55)
(57)
(60)
(63)
(67)
-0.37%
-0.35%
-0.35%
-0.35%
-0.35%
-0.35%
-0.35%
-0.35%
-0.35%
855
1,014
1,143
1,226
1,255
1,270
1,283
1,347
1,415
1,485
1,560
32.0%
2,150
19.2%
Plus/(minus) Changes WC
3,880
14,180
2019E
-0.36%
1,803
% of Sales
29.3%
8.5%
2018E
(43)
% Growth
Add Depreciation/Amort
3,617
13,378
2017E
-0.43%
32.0%
Net Income
3,208
2016E
32.0%
2,420
12.6%
32.0%
2,606
7.7%
32.0%
2,666
2.3%
32.0%
2,698
1.2%
32.0%
2,727
1.1%
32.0%
2,863
5.0%
32.0%
3,006
32.0%
3,157
5.0%
5.0%
32.0%
3,314
5.0%
235
225
275
401
425
447
469
295
259
271
285
2.4%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
1.8%
1.5%
1.5%
1.5%
-388
-413
-364
-134
-142
-149
-156
-164
-172
-181
-190
-3.9%
-3.7%
-2.9%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
314
383
376
375
397
417
438
328
259
271
285
Capex % of sales
3.1%
3.4%
3.1%
2.8%
2.8%
2.8%
2.8%
2.0%
1.5%
1.5%
1.5%
Free Cash Flow
1,336
1,579
1,956
2,499
2,553
2,579
2,602
2,666
2,834
2,976
3,124
18.2%
23.9%
27.8%
2.1%
1.0%
0.9%
2.5%
6.3%
5.0%
5.0%
% Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
14,553
21,978
36,531
3.72%
40%
60%
100%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
19.9
20.3
(534.8)
(534.6)
16.7
17.0
(459.5)
(459.3)
145.70
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$
$
246.51
250.73
1.7%
Terminal Value
Free Cash Yield
14.8
15.1
(405.3)
(405.2)
Terminal P/E
Terminal EV/EBITDA
59,649
5.24%
18.0
(297.3)
Sensitivity Analysis of Price
$
250.73
4.00%
4.25%
4.50%
4.75%
5.00%
5.25%
5.50%
5.75%
6.00%
6.25%
10.00%
$ 235.81
244.52
254.03
264.44
275.89
288.54
302.61
318.32
336.01
356.05
10.25%
$ 226.31
234.27
242.93
252.37
262.71
274.08
286.65
300.62
316.23
333.79
10.50%
$ 217.55
224.84
232.75
241.35
250.73
260.99
272.29
284.78
298.65
314.15
10.75%
$ 209.43
216.14
223.39
231.25
239.78
249.10
259.30
270.52
282.92
296.70
11.00%
$ 201.89
208.08
214.75
221.95
229.75
238.23
247.48
257.61
268.76
281.08
11.25%
$ 194.87
200.60
206.75
213.37
220.52
228.27
236.69
245.88
255.95
267.02
11.50%
$ 188.32
193.63
199.31
205.42
212.00
219.11
226.80
235.17
244.30
254.29
11.75%
$ 182.19
187.12
192.39
198.04
204.11
210.65
217.70
225.35
233.66
242.72
12.00%
$ 176.44
181.03
185.93
191.17
196.78
202.81
209.30
216.31
223.91
232.16
Recommendation
Mean Target:
Median Target:
High Target:
Low Target:
No. of Brokers:
278.38
284.00
303.00
235.00
21
DCF
P/Forward E
P/S
P/B
P/EBITDA
P/CF
250.73
259.94
272.92
202.94
219.71
--
Average Price:
$247.44
Recommendation:
Do Nothing
Reasons
Lots of acquisition undergoing with
numerous associated risks such as
inaccurate assessment and less control
 Operating in cyclical market
 Increasing lending can lead to down grade
the credit rating
 Volatility of price in raw material

Caterpillar Inc.
Recommendation
Currently 4.28% of SIM Portfolio
 Purchased at $103.56
 Current Price at $84.24
 Loss of 18.65%

Third Quarter Earnings
Sales decreased $11 billion or 17%
 75% of the $11 billion came from a
decline in the Resources Industries
(mining)
 5% decrease in both Power Systems and
Construction Industries
 EPS down to $1.45 from $2.54 in 2012

DCF
Caterpillar (CAT)
Gavin Smith
Terminal Discount Rate =
9/21/2013
Year
Revenue
Terminal FCF Growth =
2013E
54,158
% Grow th
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
55,811
3.0%
5,250
5,815
58,361
4.4%
6,867
2016E
61,279
5.0%
7,966
2017E
64,343
5.0%
7,721
3.5%
2018E
67,560
5.0%
8,107
2019E
71,276
5.5%
7,840
2020E
75,196
5.5%
7,520
2021E
79,708
6.0%
7,971
2022E
84,490
6.0%
8,449
2023E
89,982
6.5%
8,998
10.4%
11.8%
13.0%
12.0%
12.0%
11.0%
10.0%
10.0%
10.0%
10.0%
325
335
350
368
386
405
428
451
478
507
540
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
1,478
30.0%
3,532
1,644
30.0%
3,836
8.6%
1,950
3.6%
5,541
10.2%
3,791
7.0%
7,231
% Grow th
2,009
30.0%
4,562
18.9%
2,101
2,280
30.0%
5,319
16.6%
2,451
2,201
30.0%
5,135
-3.5%
2,574
2,311
30.0%
5,391
5.0%
3,378
2,224
30.0%
5,189
-3.8%
3,564
2,121
30.0%
4,948
-4.6%
3,985
2,248
30.0%
5,245
6.0%
4,225
2,383
30.0%
5,559
6.0%
4,478
2,538
30.0%
5,921
6.5%
4,769
3.6%
4.0%
4.0%
5.0%
5.0%
5.3%
5.3%
5.3%
5.3%
(957)
(1,642)
(1,226)
(643)
(676)
(713)
(752)
(797)
(845)
(900)
-1.7%
3,907
7.0%
982
-86.4%
19,143
NPV of terminal value
29,719
61%
Projected Equity Value
48,863
100%
Free Cash Flow Yield
12.95%
663
1,955
3.6%
NPV of Cash Flows
Shares Outstanding
2015E
9.7%
% Grow th
Add Depreciation/Amort
2014E
10.0%
-2.8%
4,085
7.0%
-2.0%
3,677
6.0%
936
2,868
-4.7%
206.5%
-1.0%
3,539
5.5%
3,526
22.9%
-1.0%
3,716
5.5%
4,378
24.2%
-1.0%
3,920
5.5%
4,120
-5.9%
-1.0%
4,136
5.5%
4,046
-1.8%
-1.0%
4,384
5.5%
4,288
6.0%
39%
Current Price
$ 84.24
Implied equity value/share
$ 73.73
Upside/(Downside) to DCF
-12.5%
-1.0%
4,647
5.5%
4,546
6.0%
-1.0%
4,949
5.5%
4,841
6.5%
Multiples Analysis
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Average Target Price
Potential Downside
High Low Median Current
40.10 7.30 12.60 12.40
1.70 0.30 1.20 0.90
7.40 2.40 4.60 2.90
15.48 2.23 7.41 5.84
14.80 2.80 9.70 7.40
Target
Multiple
11.50
0.85
3.00
6.00
9.00
Targe E,
S… per
share Target Price
6.30
72.45
84.71
72.00
28.46
85.38
12.78
76.65
8.24
74.12
76.12
-10%
Other Reasons to Sell
Slow growth in US economy
 Decelerating growth in China
 Declining new orders in Asia
 Quantitative Easing

Asia Heat Map
Quanta Services
When first initiated coverage was a buy
 Gains have already began to materialize
 Current Price $29.84
 Still has about 13% upside

Quanta Services

Three major Lines of Businesses
◦
◦
◦
Electric Power
Natural Gas and Pipeline
Fiber Optic
DCF
Quanta Services (PWR)
Gavin Smith
10/7/2013
Year
Revenue
2013E
6,447,722
% Grow th
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
8.0%
605,118
8.5%
2015E
8,103,463
13.8%
745,519
10.0%
Terminal FCF Growth =
5.5%
2016E
9,237,948
14.0%
816,343
2017E
10,531,260
2018E
12,005,637
14.0%
893,895
2019E
13,746,454
14.0%
14.5%
983,285
1,086,530
2020E
15,739,690
14.5%
1,206,048
2021E
18,021,945
14.5%
1,338,713
2022E
20,635,127
14.5%
1,499,359
2023E
23,317,694
13.0%
1,679,282
9.2%
9.5%
9.5%
10.0%
10.5%
11.0%
11.0%
12.0%
12.0%
(1,500)
(500)
(500)
(4,619)
(5,266)
(6,003)
(6,873)
(7,870)
(9,011)
(10,318)
(11,659)
-0.02%
-0.007%
-0.006%
-0.05%
-0.05%
-0.05%
-0.05%
-0.05%
-0.05%
-0.05%
-0.05%
174,868
34.0%
321,450
% Grow th
205,570
34.0%
381,048
18.5%
Add Depreciation/Amort
183,760
% of Sales
7,119,039
10.4%
Operating Income 515,818
Operating Margin
2014E
Terminal Discount Rate =
210,012
253,306
34.0%
473,712
24.3%
247,966
279,127
34.0%
541,835
14.4%
295,614
305,715
336,358
34.0%
593,446
34.0%
652,930
9.5%
337,000
371,757
34.0%
721,646
10.0%
10.5%
384,180
439,887
412,732
34.0%
801,186
11.0%
503,670
458,226
34.0%
889,498
11.0%
576,702
513,290
34.0%
996,387
12.0%
660,324
574,920
34.0%
1,116,021
12.0%
746,166
2.9%
3.0%
3.1%
3.2%
3.2%
3.2%
3.2%
3.2%
3.2%
3.2%
3.2%
Plus/(minus) Changes
(146,908)
WC
(80,355)
(138,768)
(138,569)
(157,969)
(180,085)
(206,197)
(236,095)
(270,329)
(309,527)
(349,765)
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
-2.3%
232,118
3.6%
126,184
% Grow th
-1.1%
266,964
3.8%
243,741
93.2%
NPV of Cash Flows
2,213,806
31%
NPV of terminal value
5,029,183
69%
Projected Equity Value
7,242,989
100%
-1.7%
324,139
4.0%
258,772
6.2%
-1.5%
378,756
4.1%
320,124
23.7%
-1.5%
431,782
-1.5%
4.1%
340,696
-1.5%
492,231
563,605
4.1%
4.1%
364,795
6.4%
391,731
7.1%
7.4%
Shares Outstanding
Current Price
213,886
$
27.51
Implied equity value/share $
33.86
Upside/(Downside) to DCF
23.1%
-1.5%
645,327
4.1%
423,433
8.1%
-1.5%
738,900
4.1%
456,971
7.9%
-1.5%
846,040
4.1%
501,144
9.7%
-1.5%
956,025
4.1%
556,396
11.0%
Reason for BUY
Sold telecommunications business to put
more focus on natural gas and pipeline
business
 Currently an underutilization of pipelines
in the U.S.
 U.S. expected to construct pipelines
throughout the country, which will
provide business
 Very strong Electric Power business

RECOMMENDATIONS SUMMARYINDUSTRIALS

Old Holdings
52%
48%
FLR
CAT

New Holdings
65%
35%
FLR
PWR
o Hold Current Position of Fluor
o Sold All Position of Caterpillar
o Buy 250 bps of Quanta
Thank you!

Questions?