Industrials Stock
Presentation
Jason Kraynak and Wade Guzdanski
Agenda
 Re-Cap
 Danaher
 Caterpillar
 Joy Global
 Fluor
 Recommendation
Re-Cap
Previous Recommendation
 Currently 263bps underweight
 We recommended no change in weighting of industrials
 Reasons for concern

Slow global growth

GDP forecasts

Economy is still early in recovery phase

Foreign political uprisings

Low growth potential – valuation suggests sector is inline
 Why we may be wrong

Recent housing recovery

Possible energy independence (lower production costs = higher margins)

Faster economic expansion

Consumer sentiment
SIM Portfolio Weight – 6/28/2013
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
+/-
12.20%
14.43%
2.23%
10.50%
13.25%
2.75%
10.50%
13.86%
3.36%
16.70%
13.99%
-2.71%
12.70%
12.14%
-0.56%
10.20%
7.57%
-2.63%
17.80%
16.85%
-0.95%
3.30%
1.60%
-1.70%
2.80%
2.10%
-0.70%
3.30%
3.92%
0.62%
0.00%
0.22%
0.22%
0.00%
0.08%
0.08%
 Industrials account for 10.2% of S&P 500, portfolio is currently underweight
263bps
Current SIM Holdings
Security
Caterpillar Inc.
Joy Global Inc.
Total Cost
$590,283.72
$347,639.05
Market
Price
82.49
48.53
Unrealized %age
Market Value Gain/(Loss) Assets
$470,193.00
($120,091) 4.66%
$293,606.50
($54,033) 2.91%
 Shares in Danaher Corporation ($383,284) were sold as part of move to
reduce portfolio to $10M prior to fiscal year-end.
Danaher
What is Danaher?
 Company Description: Danaher Corporation designs, manufactures and
markets professional, medical, industrial, and commercial products and
services. The Company’s research and development, manufacturing, sales,
distribution, service, and administrative facilities are located in more than
50 countries. It operates in five segments: Test & Measurement;
Environmental; Life Sciences & Diagnostics; Dental; Industrial Technologies.
Danaher
Price (7/12/13)
Target Price
Projected Return
Recommendation
DHR
$68.19
$64.14
-5.94%
Sell
52 Week High
$69.00
52 Week Low
$49.52
Market Capitalization 47.24B
Shares Outstanding 692.71M
Div/Yield
0.025/0.15
Trailing P/E
21.2
Forward P/E
19.4
Segments
 Test & Measurement
 Electronic measurement instruments for electronics equipment and communication
networks
 Environmental
 Water supply and air quality tools
 Water Analysis & treatment
 Life Sciences & Diagnostics
 Analytical instruments for hospitals, physician’s offices, laboratories to diagnose disease
and make treatment recommendations
 Tools for scientists to study cells for complex biological matters
Segments
 Dental
 Consumables and instruments
 Industrial Technologies
 Components and systems for sale to end markets
 Printing, coding, bar codes, logos, graphics
2012 Sales
Net Revenue
$ in millions
Test & Measurement
Environmental
Life Sciences & Diagnostics
Dental
Industrial Technologies
Total
2012
$3,381.0
$3,063.5
$6,485.1
$2,022.9
$3,307.9
$18,260.4
2011 % Change
$3,390.9 -0.29%
$2,939.6
4.21%
$4,627.4 40.15%
$2,011.2
0.58%
$3,121.4
5.97%
$16,090.5 13.48%
Revenue by Country
$ in millions
United States
Germany
China
Japan
All Other
Total
2012
$7,809.8
$1,111.3
$1,443.5
$892.8
$7,003.0
$18,260.4
2011 % Change
$6,787.8 15.06%
$1,189.0 -6.53%
$1,133.2 27.38%
$809.4 10.30%
$6,171.1 13.48%
$16,090.5
Price Rally
Reasons we sold
 Price – DCF = $64.14
Current Price = $68.18
 Global Growth Concerns
 Competition fierce / Short Cycle Innovation
 Danaher Business System (DBS) – lean sacrifices growth???
 M&A mistake???
Reasons for Optimism
 Brand
 Size & Diversity
 DBS – Danaher Business System
 M&A powerhouse
 Economy ready to surprise?
Caterpillar, Inc.
Caterpillar, Inc. Overview
 Industry: Machinery Construction / Farming
 Description: Caterpillar is the world’s leading manufacturer of construction
and mining equipment, diesel and natural gas engines, industrial gas
turbines and diesel-electric locomotives.
 Segments: Caterpillar operates in two segments, Machinery and Power
Systems and Financial Products
 Market Cap: $57.99B
 Current Price: $87.17
 52 Week Trading Range: $78.79 – $99.70
Caterpillar Segments
 Machinery and Power Systems Represents the aggregate total of Construction
Industries, Resource Industries and Power Systems.
Construction Industries: primarily responsible for machinery in infrastructure and building
construction applications
Resource Industries: primarily responsible for supporting customers using machinery in mine and
quarry applications
Power Systems: primarily responsible for supporting customers using reciprocating engines, turbines
and related parts
2012 Revenue by Geographic Region
2012 Revenue by Segment
5% 2%
Construction Industries
29%
31%
United States
32%
Resource Industries
Power Systems
Outside United States
Financial Products
69%
32%
Other
Recent Performance
 Caterpillar’s share price is down approximately -8% since January 2013 and
more than -26% since February 2012
Drivers of Performance
 Caterpillar’s near term results are significantly impacted by the downturn in
the Resource Industries segment.
 Decreases in commodity prices, especially coal and iron ore, have triggered
a significant decrease in the demand for mining equipment.
 Our 2013 revenue forecast includes a 50% decline for the Resource
Industries which matches the companies revised guidance from April 22,
2013.
Revenue Growth Trend
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013E FY 2014E FY 2015E
Revenue
Drivers of Performance
 Despite downturn in mining and global economic uncertainty, remaining
segments are expected to be strong
 Excluding Resource Industries, revenues are expected to grow by
approximately 8.5% in 2013
 Opportunities for growth are in China and emerging markets, however,
China growth continues to slow down
 Housing market in the U.S. is turning around
 Increase in orders for capital goods
Source: http://research.stlouisfed.org/fred2/series/NEWORDER/)
Valuation
Relative to Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Relative to S&P 500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Absolute Valuation
High
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Low
1.3
1.5
2
1.7
1.5
0.81
0.74
0.8
0.8
0.5
Low
2.1
2.6
2.7
1.3
1.6
B.
40.1
1.7
7.4
15.48
14.2
Median
Current
1
0.93
0.99
1
1.2
0.9
1
0.9
1
0.9

Caterpillar appears cheap
relative to the industry and S&P
500

Valuation suggests target price
range of $96 - $112
Median
Current
0.41
0.95
0.71
0.61
0.86
0.8
1.1
1.9
1.3
0.4
0.8
0.6
0.4
0.9
0.7
Low
C.
7.3
0.3
2.4
2.23
2.8
Median
Current
D.
12.7
1.2
4.6
7.44
9.7
E.
11.9
0.9
3.1
5.44
7.2
Target
Multiple
F.
11.9
1.1
4
6.8
8.2
Target
Earnings
G.
8.05
Target Price
(F x G)
H.
95.8
106.05
111.96
108.46
98.82
DCF Analysis
 Discounted cash flow analysis calculated a target price of $107.60, which
implies a 23% upside potential
 Terminal discount rate of 10.5%: slightly higher discount rate was used to account for
cyclical nature
 Terminal growth rate of 4%: The terminal growth rate for the S&P 500 is approximately
3.5% added 50bps to account for higher expected growth rates
Discount Rate
Terminal
Growth Rate
10.00% 10.25% 10.50% 10.75% 11.00%
3.50%
111.4
107.2
103.4
99.7
96.4
3.75%
113.8
109.4
105.4
101.6
98.1
4.00%
116.5
111.8
107.6
103.6
99.9
4.25%
119.4
114.4
109.9
105.7
101.8
4.50%
122.5
117.3
112.4
108.0
103.9
DCF Analysis
• On 7/25/13 Caterpillar reported their Q2 earnings which missed analysts
expectations.
•
Miss was driven by continued struggles in Resource Industries, $1 billion in dealer machine
inventory reductions and currency translation & hedging losses
• DCF was updated to reflect the new outlook and guidance provided by the
company.
• Major adjustments to DCF were to revenue growth in 2013 -2015 and
operating margin for Resource Industries in 2013 and 2014
• Updated DCF resulted in an implied value of $102.88 which was
approximately $5 less than original. However, current price was lower in
updated DCF which resulted in an implied upside of 23.3% versus 23.4% in
our original analysis.
Caterpillar Recommendation
 Recommendation: HOLD
 Current Price: $87.17
 Target: $107.60
 Potential Upside: 23%
Catalysts
Risks

Caterpillar is undervalued
• Downturn in global economies

Increased government spend on
infrastructure
• Further negative announcements related to
CAT’s business expansions

Strong economies in emerging markets

Quick turnaround in mining market
• Additional decreases in mining related
commodity prices
• Decline in users’ access to capital
• Continued strengthening of the U.S. Dollar
Joy Global, Inc.
Joy Global Overview
 Industry: Machinery Construction / Farming
 Description: Joy Global engages in the manufacturing and servicing of
mining equipment for the extraction of coal, copper, iron ore, oil sands, and
other minerals
 Segments: Joy Global operates in two segments, Underground Mining
Machinery and Surface Mining Equipment
 Market Cap: $5.34B
 Current Price: $50.26
 52 Week Trading Range: $47.96 – $69.19
Joy Global Segments
 Joy Global’s products are used in mining copper, coal, iron ore, oil sands,
silver, gold, diamonds, phosphate, and other minerals and ores.
 Underground Mining Machinery: produces continuous miners, longwall
shearers, powered roof supports, armored face conveyors, shuttle cars,
flexible conveyor trains, roof bolters, battery haulers, continuous
haulage systems, feeder breakers, conveyor systems, high angle
conveyors, and crushing equipment
 Surface Mining Equipment: produces electric mining shovels, wheel
loaders, walking draglines, and rotary blasthole drills for open-pit mining
operations.
Recent Performance
 Joy Global’s share price is down approximately 50% in the last two years
Drivers of Performance
 Thermal coal market experienced a significant loss in coal demand
 Decrease in demand in United States, China and Europe
 Decrease in the cost of natural gas
 Excess supply from new mines coming on line, particularly in Austria
 Share of power generation from thermal coal dropped from 43% to 33% in
2012 before rebounding back to 40% in 2013
 Economies of power switching from natural gas
 $2.50 per million BTU – Powder River Basin
 $3.00 per million BTU – Illinois Basin
 $4.00 per million BTU – Central Appalachia
Drivers of Performance
 Slow growth in global commodity demand
 Sluggish recovery in the U.S, lingering economic contraction in the Eurozone and weaker
than expected recovery in China
 China consumes the majority of the world’s mined commodities, which has
a disproportional impact on commodity demand
 Signs of improvement
Fixed asset investment increased 20.1% for the first half of 2013
China’s electricity consumption is expected to rise between 5.5% and 6.5% for the first half of 2013
and is expected to increase between 6.5% - 8.5% for the full year 20131
1
Source: http://news.xinhuanet.com
Valuation
Relative to Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
2.00
1.60
3.70
3.30
2.60
Low
0.41
0.33
0.50
1.00
0.80
Median
0.82
0.83
1.10
1.50
1.10
Current
0.62
0.77
0.60
1.00
0.80
Relative to S&P 500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
1.70
1.30
4.90
2.70
2.40
Low
0.44
0.46
0.70
0.60
0.60
Median
0.70
0.85
2.50
1.30
1.10
Current
0.46
0.61
0.80
0.70
0.60
Absolute Valuation
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
Low
Median
Current
B.
C.
D.
E.
19.2
3.4
11.3
16.1
24.4
5.0
0.6
1.9
3.0
4.2
11.9
1.5
5.2
7.0
10.2
9.4
1.0
1.9
4.2
6.4

Joy appears cheap
relative to the industry
and S&P 500

Valuation suggests target
price range of $57 - $68
#Your
*Your
Your Target
Target
Target E, S,
Price
Multiple B, etc/Share
(F x G)
F.
G.
H.
10.4
5.5
57.41
1.2
60.34
2.6
68.80
5.2
62.10
7.8
61.28
DCF Analysis
 Discounted cash flow analysis calculated a target price of $58.81, which
implies a 17% upside potential
 Terminal discount rate of 12%: higher discount rate was used to account for cyclical nature
of the industry (Joy’s BETA = 2.31)
 Terminal growth rate of 3%: lower growth rate used due to uncertainty of the market and
commodity prices
Conservative assumption as historical revenue growth rates significantly exceed estimate
Terminal
Growth Factor
Discount Rate
2.50%
2.75%
3.00%
3.25%
3.50%
11.50%
60.9
61.7
62.6
63.6
64.6
11.75%
59.0
59.8
60.7
61.6
62.5
12.00%
57.3
58.0
58.8
59.6
60.5
12.25%
55.6
56.3
57.1
57.8
58.6
12.50%
54.1
54.7
55.4
56.1
56.8
Joy Global Recommendation
 Recommendation: SELL
 Current Price: $50.26
 Target: $58.81
 Potential Upside: 17%
Catalysts
Risks

Joy Global is undervalued


Quick turnaround in the mining market
Uncertain expectations, 13% of the float held
short

Turnaround in China

Downturn in global economies

Need to replace machinery in developed
markets, service and support services in the
after-market represents nearly 60% of Joy’s
business

Additional decreases in mining related
commodity prices
Fluor
Engineering & Construction Industry Outlook
 Valuation
 Outperformed the S&P 500 by 3% since the first quarter 2013
 P/E 16 compared to average 20.3 over past 10 years
 Energy Infrastructure
 Fundamentals favorable for investment, particularly in North America
 Investment plans driven more by resource constraints and input costs, not just increasing
global demand
 Less sensitive to short term fluctuations in global GDP expectations
 Risks to Infrastructure?
 Increase in costs from tightening labor constraints
 Large companies should be well staffed to take on additional work over next 12-18 months
 Shouldn’t have large impact on total project costs….no delay in investment
Fluor Overview
 Company Description: Fluor Corporation (Fluor) is a holding company. It is a
professional services company providing engineering, procurement, construction
and maintenance, as well as project management services on a global basis. Fluor
serves a diverse set of industries worldwide, including oil and gas, chemicals and
petrochemicals, transportation, mining and metals, power, life sciences and
manufacturing. It is also a primary service provider to the United Services federal
government. Fluor operates in five principal segments: Oil & Gas, Industrial &
Infrastructure, Government, Global Services and Power.
Fluor
Price (7/19/13)
Target Price
Projected Return
Recommendation
FLR
$62.84
$73.04
16.23%
Buy
52 Week High
$66.90
52 Week Low
$46.57
Market Capitalization 10.23B
Shares Outstanding 162.87M
Div/Yield
0.16/1.02
Trailing P/E
22.44
Forward P/E
15.71
Business Analysis


Oil & Gas

Production & Processing

Project design, procurement, engineering, construction
Industrial & Infrastructure




Design, engineering, & construction to transportation, wind power, mining, manufacturing, telecom,
and healthcare sectors
Government

Design, engineering, construction to US Government

Department of Energy

Department of Defense
Global Services

Serve & Assist industrial clients

AMECO – equipment for construction projects Globally
Power

Gas fuels, solid fuels, environmental regulations, renewables, nuclear
2012 Sales
2012 Revenue
3%
6%
12%
35%
Oil & Gas
Industrial & Infrastructure
Government
Global Services
Power
44%
Net Revenue
$ in millions
Oil & Gas
Industrial & Infrastructure
Government
Global Services
Power
Total
2012
$9,513.9
$12,195.7
$3,304.7
$1,721.7
$841.1
$27,577.1
2011 % Change
$7,961.7 19.49%
$9,700.4 25.72%
$3,398.2 -2.75%
$1,577.7
9.13%
$743.4 13.14%
$23,381.4 17.94%
Fluor – More Energy, Less Mining!
 Company continues transition from mining to oil and gas…more bookings in
oil sands, petrochemicals, and gas to liquids projects
 Confident in current mining contracts (don’t expect cancellations) very
conservative guidance to 2013 EPS
 Large number of prospects for oil and gas business (think infrastructure)
 Opportunity for refining projects in Middle East, Russia, Europe, and Mexico
 Strategic acquisitions in infrastructure design market for oil and gas, rail,
nuclear power, and wind farms
 EPA – more stringent emissions regulations
Fluor risks
 Project delays or cancellations
 Political unrest
 Sharp drop in oil prices
 Pricing for new projects
 Slight concern for margin
 2009 saw peak levels (6.0 – 6.5)
 Current levels 3.8%
Price – 2 Year Movement
Valuation = Attractive
Construction & Engineering
High
Low
Median
P/E
54.6
10.0
20.3
P/Forward
31.8
9.0
17.6
P/B
7.9
1.7
2.9
P/Sales
1.0
0.3
0.5
P/CF
29.6
8.2
13.5
P/E
P/Forward
P/B
P/Sales
P/CF
High
49.0
32.5
8.0
1.0
38.2
Fluor
Low
9.1
8.9
2.2
0.3
7.3
Median
19.8
18.1
3.4
0.4
13.3
Current
16.0
16.5
2.1
0.5
12.2
Current
22.4
15.7
2.7
0.4
10.9
Construction & Engineering relative to S&P 500
High
Low
Median
Current
3.30
0.59
1.40
1.00
2.00
0.72
1.20
1.10
2.80
0.80
1.30
0.80
0.70
0.20
0.40
0.40
2.80
0.90
1.40
1.20
High
3.00
2.10
3.00
0.70
3.40
Fluor relative to S&P 500
Low
Median
0.58
1.30
0.69
1.20
0.90
1.30
0.20
0.40
0.80
1.40
Current
1.40
0.97
1.10
0.20
1.00
DCF
 Current Price - $62.84 (as of 7/19/2013)
 DCF target price is $73.04 providing an upside of 16.23%
 Discount rate 11.50% - more cyclical revenue streams from projects, more
volatility
 Terminal Growth rate 3.5% - in line with consensus. Opportunities with oil
& gas, short term problems with mining.
3.00%
3.25%
3.50%
3.75%
4.00%
11.00%
$ 75.20
$ 76.41
$ 77.69
$ 79.07
$ 80.54
11.25%
$ 73.00
$ 74.11
$ 75.29
$ 76.55
$ 77.89
11.50%
$ 70.93
$ 71.95
$ 73.04
$ 74.19
$ 75.43
11.75%
$ 68.97
$ 69.92
$ 70.92
$ 71.98
$ 73.12
12.00%
$ 67.13
$ 68.00
$ 68.93
$ 69.91
$ 70.95
Fluor Recommendation
 Recommendation: BUY
 Current Price: $62.84 (7/19/13)
 Target: $73.04
 Potential Upside: 16.23%
Catalysts
Risks

Oil & Gas

Project delays or cancellations

Infrastructure

Mining struggles

Current Mining Contracts in process (no
cancellations)

Drop in commodity prices – oil

Margins

Acquisition targets available
Recommendation
Recommendation
Security
Caterpillar Inc.
Joy Global Inc.
Total Cost
$590,283.72
$347,639.05
Market
Price
82.49
48.53
Unrealized %age
Market Value Gain/(Loss) Assets
$470,193.00
($120,091) 4.66%
$293,606.50
($54,033) 2.91%
 Reduce exposure to mining
 Sell position in Joy Global and buy Fluor (2.91%) position.
Questions?
Appendix
DHR
Analyst: Jason Kraynak
7/12/2013
Terminal Discount Rate = 10.50%
Terminal FCF Growth =
4.0%
Year
DCF Danaher
2013E
Revenue
18,991
% Grow th
2014E
20,130
2015E
21,741
2016E
23,045
2017E
24,428
2018E
25,649
2019E
26,932
2020E
28,009
2021E
29,129
2022E
30,294
2023E
31,506
6.0%
8.0%
6.0%
6.0%
5.0%
5.0%
4.0%
4.0%
4.0%
4.0%
Cost of Sales
SG&A
R&D
Total Costs
9116
5507
1187
15810
9260
5838
1258
16356
9566
6305
1359
17230
12283
5480
1134
18897
13020
5809
1202
20031
13671
6099
1262
21032
14355
6404
1325
22084
14929
6660
1378
22967
15526
6927
1433
23886
16147
7204
1490
24841
16793
7492
1550
25835
Operating Income
3,181
3,774
4,511
4,148
4,397
4,617
4,848
5,042
5,243
5,453
5,671
Operating Margin
Interest
Interest % of Sales
Taxes
Tax Rate
Net Income
16.8%
18.8%
20.8%
18.0%
18.0%
18.0%
18.0%
18.0%
18.0%
18.0%
18.0%
160
165
170
138
147
128
135
112
117
121
126
0.8%
0.8%
0.8%
0.6%
0.6%
0.5%
0.5%
0.4%
0.4%
0.4%
0.4%
725
875
24.0%
24.2%
2,296
% Grow th
2,734
19.1%
Add Depreciation/Amort
1,075
% of Sales
Plus/(minus) Changes WC
% of Sales
1,147
1,100
25.3%
3,241
18.5%
1,239
1,086
25.3%
2,924
-9.8%
1,267
1,151
25.3%
3,099
6.0%
1,344
1,202
25.3%
3,286
6.0%
1,411
1,262
25.3%
3,451
5.0%
1,347
4.0%
1,363
25.3%
4,076
4.0%
1,418
5.0%
5.0%
4.5%
4.5%
4.5%
21
(211)
(298)
(115)
(122)
(128)
(135)
(140)
(146)
(151)
(158)
-0.5%
-0.5%
-0.5%
-0.5%
674
737
855
898
943
Capex % of sales
2.8%
3.0%
3.1%
3.2%
3.5%
3.5%
3.5%
2,867
% Grow th
Debt
Cash
Cash/share
1,311
3,919
1,469
5.5%
-1.4%
3,067
7.0%
21,326
23,101
44,427
6.07%
20.6
19.4
11.6
11.0
3,509
14.4%
3,339
-4.8%
48%
52%
100%
3.8%
3,671
5.9%
3,720
1.3%
4.0%
3,764
1.2%
-0.5%
1,165
4.0%
3,769
0.1%
-0.5%
1,212
4.0%
3,919
4.0%
Free Cash Yield
17.3
16.2
10.1
9.5
14.6
13.7
8.6
8.1
68.19
64.13
-5.95%
4,404
2,150
3.10
3,466
-0.5%
1,120
Terminal Value
692.7
$
$
4.0%
25.3%
5.5%
604
Current Price
Implied equity value/share
Upside/(Downside) to DCF
1,400
3,769
1,412
5.5%
-1.0%
Shares Outstanding
5.0%
25.3%
5.7%
525
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
3,624
1,358
5.7%
0.1%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
25.3%
5.7%
Subtract Cap Ex
Free Cash Flow
1,306
as of 3/31/13
as of 3/31/13
-0.5%
1,418
4.5%
3,919
0.0%
62,698
6.25%
Terminal P/E
15.4
Terminal EV/EBITDA
9.2
Terminal Discount Rate =
Terminal FCF Growth =
Year
DCF Caterpillar
10.5%
4.0%
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
59,092
-10.3%
63,237
7.0%
68,938
9.0%
73,074
6.0%
77,459
6.0%
81,719
5.5%
86,214
5.5%
90,524
5.0%
95,051
5.0%
99,328 103,301
4.5%
4.0%
Operating Margin
Operating Margin
7,173
12.1%
8,285
13.1%
9,604
13.9%
9,865
13.5%
10,302
13.3%
10,705
13.1%
11,122
12.9%
11,497
12.7%
11,881
12.5%
12,118
12.2%
12,396
12.0%
Interest and Other
Interest % of Sales
355
0.6%
316
0.5%
345
0.5%
365
0.5%
387
0.5%
409
0.5%
431
0.5%
453
0.5%
475
0.5%
497
0.5%
517
0.5%
2,046
30.0%
2,391
30.0%
2,778
30.0%
2,850
30.0%
2,974
30.0%
3,089
30.0%
3,207
30.0%
3,313
30.0%
3,422
30.0%
3,486
30.0%
3,564
30.0%
Profit (Loss) of Unconsolidated Affiliates
64& NCI 68
% of Sales
0.1%
0.1%
74
0.1%
79
0.1%
84
0.1%
88
0.1%
93
0.1%
98
0.1%
103
0.1%
107
0.1%
112
0.1%
Revenue
% Growth
Taxes
Tax Rate
2022E
2023E
Net Income
% Growth
4,709
-17.1%
5,510
17.0%
6,407
16.3%
6,571
2.6%
6,857
4.3%
7,119
3.8%
7,390
3.8%
7,633
3.3%
7,882
3.3%
8,028
1.9%
8,204
2.2%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
2,836
4.8%
6,473
11.0%
3,400
5.8%
2,846
4.5%
(544)
-0.9%
3,162
5.0%
2,964
4.3%
(588)
-0.9%
2,964
4.3%
3,142
4.3%
(1,315)
-1.8%
3,142
4.3%
3,331
4.3%
(1,394)
-1.8%
3,331
4.3%
3,514
4.3%
(1,471)
-1.8%
3,514
4.3%
3,707
4.3%
(1,552)
-1.8%
3,707
4.3%
3,802
4.2%
(1,629)
-1.8%
3,802
4.2%
3,992
4.2%
(1,711)
-1.8%
3,992
4.2%
4,172
4.2%
(1,788)
-1.8%
4,172
4.2%
4,339
4.2%
(1,859)
-1.8%
4,339
4.2%
Free Cash Flow
% Growth
10,619
512.4%
4,650
-56.2%
5,819
25.1%
5,256
-9.7%
5,462
3.9%
5,648
3.4%
5,838
3.4%
6,004
2.8%
6,171
2.8%
6,240
1.1%
6,345
1.7%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
35,367
37,404
72,770
18.00%
49%
51%
100%
12.5
15.5
8.6
10.0
12.0
14.8
8.9
10.4
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
676.6
$ 87.17
$ 107.55
23.4%
33,039
5,490
8.11
Terminal Value 101,516
10.4
12.8
7.6
8.8
Free Cash Yield
6.25%
Terminal P/E
12.4
Terminal EV/EBITDA
7.7
Terminal Discount Rate =
Terminal FCF Growth =
Year
Revised DCF
Caterpillar
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
57,013
-13.5%
60,238
5.7%
65,115
8.1%
69,022
6.0%
73,163
6.0%
77,187
5.5%
81,432
5.5%
85,504
5.0%
89,779
5.0%
93,819
4.5%
97,572
4.0%
Operating Margin
Operating Margin
6,773
11.9%
7,584
12.6%
8,736
13.4%
9,318
13.5%
9,731
13.3%
10,112
13.1%
10,505
12.9%
10,859
12.7%
11,222
12.5%
11,446
12.2%
11,709
12.0%
Interest and Other
Interest % of Sales
342
0.6%
301
0.5%
326
0.5%
345
0.5%
366
0.5%
386
0.5%
407
0.5%
428
0.5%
449
0.5%
469
0.5%
488
0.5%
1,929
30.0%
2,185
30.0%
2,523
30.0%
2,692
30.0%
2,809
30.0%
2,918
30.0%
3,029
30.0%
3,129
30.0%
3,232
30.0%
3,293
30.0%
3,366
30.0%
Profit (Loss) of Unconsolidated Affiliates
62& NCI 65
% of Sales
0.1%
0.1%
70
0.1%
75
0.1%
79
0.1%
83
0.1%
88
0.1%
92
0.1%
97
0.1%
101
0.1%
105
0.1%
Revenue
% Growth
Taxes
Tax Rate
•
•
•
On 7/25/13 Caterpillar reported
their Q2 earnings which missed
analysts expectations.
DCF was updated reflect the new
outlook and guidance provided
by the company.
• Major adjustments were to
revenue growth in 2013 2015
Updated DCF resulted in an
implied value of $102.88 which
was approximately $5 less than
original. However, current price
was lower in updated DCF which
resulted in an implied upside of
23.3% versus 23.4%.
10.5%
4.0%
Net Income
% Growth
4,440
-21.8%
5,033
13.3%
5,817
15.6%
6,206
6.7%
6,476
4.3%
6,725
3.8%
6,980
3.8%
7,210
3.3%
7,444
3.3%
7,582
1.9%
7,749
2.2%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
2,737
4.8%
7,221
12.7%
3,400
6.0%
2,711
4.5%
(257)
-0.4%
3,012
5.0%
2,800
4.3%
(380)
-0.6%
2,800
4.3%
2,968
4.3%
(1,242)
-1.8%
2,968
4.3%
3,146
4.3%
(1,317)
-1.8%
3,146
4.3%
3,319
4.3%
(1,389)
-1.8%
3,319
4.3%
3,502
4.3%
(1,466)
-1.8%
3,502
4.3%
3,591
4.2%
(1,539)
-1.8%
3,591
4.2%
3,771
4.2%
(1,616)
-1.8%
3,771
4.2%
3,940
4.2%
(1,689)
-1.8%
3,940
4.2%
4,098
4.2%
(1,756)
-1.8%
4,098
4.2%
Free Cash Flow
% Growth
10,998
534.3%
4,474
-59.3%
5,437
21.5%
4,964
-8.7%
5,159
3.9%
5,335
3.4%
5,515
3.4%
5,671
2.8%
5,828
2.8%
5,894
1.1%
5,993
1.7%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
34,278
35,329
69,607
19.48%
49%
51%
100%
Terminal Value
95,886
Free Cash Yield
6.25%
12.7
15.7
8.8
10.2
11.5
14.1
8.7
10.0
Terminal P/E
12.4
Terminal EV/EBITDA
7.8
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
676.6
$ 83.44
$ 102.88
23.3%
33,039
5,490
8.11
9.9
12.3
7.4
8.5
JOY Global - Discounted Cash Flow
Year
DCF Joy Global
Terminal Discount Rate =
Terminal FCF Growth =
12.0%
3.0%
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
4,959
-12.4%
4,702
-5.2%
4,995
6.2%
5,245
5.0%
5,508
5.0%
5,755
4.5%
6,014
4.5%
6,255
4.0%
6,505
4.0%
6,733
3.5%
6,935
3.0%
Operating Margin
Operating Margin
943
19.0%
888
18.9%
989
19.8%
1,050
20.0%
1,091
19.8%
1,141
19.8%
1,192
19.8%
1,240
19.8%
1,276
19.6%
1,321
19.6%
1,360
19.6%
Interest and Other
Interest % of Sales
(49)
-1.0%
(46)
-1.0%
(49)
-1.0%
(52)
-1.0%
(54)
-1.0%
(57)
-1.0%
(59)
-1.0%
(62)
-1.0%
(64)
-1.0%
(66)
-1.0%
(68)
-1.0%
Taxes
Tax Rate
268
30.0%
252
30.0%
282
30.0%
331
30.0%
344
30.0%
359
30.0%
375
30.0%
390
30.0%
402
30.0%
416
30.0%
429
30.0%
Profit (Loss) of Unconsolidated Affiliates
(0) & NCI(0)
% of Sales
0.0%
0.0%
(0)
0.0%
(0)
0.0%
(0)
0.0%
(0)
0.0%
(0)
0.0%
(0)
0.0%
(0)
0.0%
(0)
0.0%
(0)
0.0%
Revenue
% Growth
Net Income
% Growth
625
-17.9%
589
-5.9%
658
11.8%
771
17.2%
802
4.0%
838
4.5%
876
4.5%
911
4.0%
938
3.0%
971
3.5%
1,000
3.0%
149
3.0%
332
6.7%
200
4.0%
146
3.1%
120
2.6%
174
3.7%
145
2.9%
(59)
-1.2%
225
4.5%
152
2.9%
(94)
-1.8%
226
4.3%
160
2.9%
(99)
-1.8%
237
4.3%
167
2.9%
(104)
-1.8%
247
4.3%
174
2.9%
(108)
-1.8%
259
4.3%
175
2.8%
(113)
-1.8%
263
4.2%
182
2.8%
(117)
-1.8%
273
4.2%
189
2.8%
(121)
-1.8%
283
4.2%
187
2.7%
(125)
-1.8%
291
4.2%
Free Cash Flow
% Growth
907
266.7%
680
-25.0%
519
-23.7%
604
16.2%
626
3.7%
654
4.5%
684
4.5%
711
4.0%
730
2.7%
756
3.5%
772
2.1%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
3,443
2,843
6,286
16.87%
55%
45%
100%
Terminal Value
8,830
Free Cash Yield
8.74%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
8.6
10.1
5.9
6.8
8.8
10.3
6.3
7.2
Terminal P/E
8.8
Terminal EV/EBITDA
6.4
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
106.9
$ 50.28
$ 58.81
17.0%
1,372
264
2.47
7.1
8.3
4.8
5.5
FLR
Analyst: Jason Kraynak
7/18/2013
Terminal Discount Rate =
Terminal FCF Growth =
Year
DCF Fluor
2013E
Revenue
28,956
% Grow th
Cost of Sales
SG&A
R&D
Total Costs
Operating Income
Operating Margin
Interest
Interest % of Sales
Taxes
Tax Rate
Net Income
31,093
2016E
32,181
2017E
33,308
2018E
34,474
2019E
35,680
2020E
36,929
2021E
38,221
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
9116
5507
1187
15810
9260
5838
1258
16356
9566
6305
1359
17230
12283
5480
1134
18897
13020
5809
1202
20031
13671
6099
1262
21032
14355
6404
1325
22084
14929
6660
1378
22967
15526
6927
1433
23886
16147
7204
1490
24841
16793
7492
1550
25835
956
946
964
965
999
1,034
1,070
1,108
1,147
1,187
1,228
3.3%
3.2%
3.1%
3.0%
3.0%
(5)
(15)
(20)
0.0%
0.0%
-0.1%
0.0%
0.0%
3.0%
0.0%
3.0%
0.0%
3.0%
-
3.0%
-
0.0%
0.0%
185
182
188
194
201
208
216
223
231
18.8%
18.8%
18.8%
18.8%
18.8%
18.8%
18.8%
18.8%
18.8%
776
799
784
811
840
869
900
931
964
997
13.2%
2.9%
-1.9%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
1,112
1,150
1,191
1,232
1,276
1,320
1,366
1,414
3.7%
3.7%
3.7%
3.7%
(132)
22
21
(161)
(167)
(172)
(178)
(185)
(191)
-0.5%
0.1%
0.1%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
Subtract Cap Ex
525
601
622
644
666
Capex % of sales
1.8%
2.0%
2.0%
2.0%
2.0%
1,104
% Grow th
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
1,309
18.6%
6,677
5,593
12,270
10.45%
15.4
17.9
6.6
7.4
1,349
3.0%
1,170
-13.2%
54%
46%
100%
3.5%
1,070
1,108
3.0%
3.0%
3.0%
909
940
973
3.5%
3.5%
-25.0%
1,147
3.0%
1,007
3.5%
3.7%
0
0.0%
1,187
3.0%
1,241
23.1%
Free Cash Yield
13.6
15.8
6.5
7.3
13.2
15.4
6.3
7.1
62.84
73.04
16.23%
4,857
2,015
11.99
1,211
1,034
1,464
Terminal Value
168.0
$
$
0.0%
185
3.7%
Shares Outstanding
-
0.0%
19.2%
3.7%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
-
3.0%
275
3.7%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
3.0%
28.6%
3.7%
Free Cash Flow
40,944
3.5%
3.7%
% of Sales
39,559
2023E
3.5%
1,075
Plus/(minus) Changes WC
2022E
3.5%
686
% of Sales
30,042
2015E
3.8%
% Grow th
Add Depreciation/Amort
2014E
11.50%
3.5%
as of 6/30/13
as of 6/30/13
1,515
3.7%
0
0.0%
1,228
3.0%
1,284
3.5%
16,611
7.73%
Terminal P/E
16.7
Terminal EV/EBITDA
7.1