Daiyuan Deng-CVS
Botao Duan-Philip Morris
Adam Gough-Wal-Mart
SECTOR OVERVIEW
 Cut 145 Basis Points
 Money better spent elsewhere
 Economic worries and uncertainty going forward, remain
slightly overweight
RECOMMENDATION
PM
CVS
WMT
DIV
ER
UPSIDE
3.7%
1.60%
2.5%
14.3%
10.60%
12.2%
18.0%
12.2%
14.0%
 CVS -sell 100 basis points
 WMT - sell 35 basis points
 PM - sell 10 basis points
WAL-MART
COMPANY OVERVIEW
 Largest retailer in the world
 Every Day Low Price (EDLP) strategy
 Narrow margins
 Economies of scale
 Aggressive cost cutting
 Competitive Advantage
 Scale
 Supply chain and supplier relationship
SEGMENT OVERVIEW
 Three segments
 Wal-Mart
 Operates 4,637 stores of different varieties
 Wal-Mart International
 6,155 stores in 26 different countries (majority in Latin and South
America
 Sam’s Club
 600 units internationally
SEGMENT CONTRIBUTION
OPPORTUNITIES AND RISKS
 Opportunities
 Continued growth in international markets
 Operating efficiency and margin improvements
 Risks
 Payroll tax increases domestically
 Increased competition from dollar stores and Target
 Uncertain global economy (Europe)
MULTIPLE VALUATION
MULTIPLE VALUATION
COMPANY OVERVIEW
CVS Caremark Corporation (“CVS Caremark”), is the largest
integrated pharmacy health care provider in the United States.
 200,000 colleagues in 45 states, the District of Columbia and
Puerto Rico.
 7,400 retail stores, 19 onsite pharmacies, 31 specialty
pharmacy stores, 12 specialty mail order pharmacies, five
mail order pharmacies, and its CVS.com and Caremark.com
websites.
 MinuteClinic division operates more than 640 retail medical
clinics globally.
SEGMENT OVERVIEW
 Retail Pharmacy Segment
 Pharmacy Services Segment
 Corporate Segment
SEGMENT ANALYSIS
in millions
Pharmacy
Service
Segement
Retail
Pharmacy
Segement
$ 73,444
3,808
2,679
$ 63,654
19,109
5,654
$ (694)
$ (13,965)
(411)
(411)
$ 123,133
22,506
7,228
$ 58,874
3,279
2,220
$ 59,599
17,468
4,912
$ (616)
$ (11,373)
(186)
(186)
$ 107,100
20,561
6,330
$ 47,145
3,315
2,361
$ 57,345
17,039
4,537
$ (626)
$ (8,712)
(135)
(135)
$ 95,778
20,219
6,137
Corporate
Segment
Intersegment Consolidated
Eliminations
Totals
2012
Net revenue
Gross profit
Operating profit
2011
Net revenue
Gross profit
Operating profit
2010
Net revenue
Gross profit
Operating profit
OPPORTUNITIES AND RISKS
 Risk
 Opportunities
 Economy situation
 Health care reform
 Uncertainty surrounding
 Aging baby boomers
health care reform
 Competition
 Litigation and legal risk
 Competitors’ mistakes
CVS Caremark (CVS)
Analyst: Daiyuan Deng
Date: 2/10/2013
Year
2012
Revenue
123,133
% Grow th
14.97%
Operating Income
7,228
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Plus/(minus) Changes WC
% of Sales
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital % of Growth
14,780
280,820
14.0%
16,849
321,539
14.5%
18,006
368,162
14.5%
20,617
421,545
14.5%
23,607
482,669
14.5%
27,029
(905)
(786)
(914)
(1,042)
(1,188)
(1,355)
(1,545)
(1,768)
(2,025)
(2,318)
(2,655)
-0.7%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
3,180
38.6%
4,402
13.6%
2,144
4,153
38.6%
5,862
33.2%
2,494
3,988
38.6%
6,342
8.2%
2,843
4,546
38.6%
7,230
14.0%
3,457
5,183
38.6%
8,242
14.0%
3,941
5,908
38.6%
9,396
14.0%
4,493
6,269
38.6%
9,969
6.1%
5,466
7,178
38.6%
11,415
14.5%
6,259
8,218
38.6%
13,070
14.5%
7,166
9,410
38.6%
14,965
14.5%
8,205
1.4%
1.5%
1.5%
1.5%
1.6%
1.6%
1.6%
1.7%
1.7%
1.7%
1.7%
(439)
(1,987)
(2,312)
(3,184)
(3,630)
(4,138)
(4,718)
(5,595)
(6,406)
(7,335)
(8,398)
28,428
53,873
82,301
4.58%
18.4
21.2
8.0
9.3
1,280
$
$
14.0%
5.6%
-1.4%
2,287
1.6%
2,569
-21.2%
Shares Outstanding
12,965
246,333
TERMINAL
2022E
5.6%
3,259
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
14.0%
2021E
5.6%
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
11,373
216,082
2020E
5.6%
1.6%
Free Cash Flow
14.0%
2019E
6.0%
2,030
Capex % of sales
10,930
189,545
2018E
6.0%
-0.4%
Subtract Cap Ex
16.3%
2017E
6.0%
1,753
% of Sales
8,367
166,268
2016E
6.0%
11%
Add Depreciation/Amort
16.1%
2015E
6.6%
3,875
% Grow th
142,916
2014E
5.9%
38.6%
Net Income
2013E
9.50%
3.5%
5.9%
2,441
Tax Rate
Terminal Discount Rate =
Terminal FCF Growth =
55.64
64.30
15.6%
9,208
8,419
6.58
65,912
14.0%
12.0%
-1.4%
2,660
1.6%
3,730
45.2%
35%
65%
100%
-1.7%
3,033
1.6%
3,440
-7.8%
-1.7%
3,457
1.6%
4,107
19.4%
-1.7%
4,188
1.7%
4,470
8.8%
-1.7%
4,774
1.7%
5,096
14.0%
-1.7%
5,466
1.7%
5,156
1.2%
-1.7%
6,259
1.7%
5,904
14.5%
-1.7%
7,166
1.7%
6,760
14.5%
Terminal Value
Free Cash Yield
16.2
18.7
6.9
7.9
12.1
14.0
5.4
6.2
-1.7%
8,205
1.7%
7,740
14.5%
133,510
5.80%
Terminal P/E
8.9
Terminal EV/EBITDA
3.8
MULTIPLE VALUATION
Absolute Valuation-CVS
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
Low
Target
Target Value/ Target
Median Current Multiple Share Price
26.4
0.8
3.7
12.63
18.3
10
0.4
1
4.88
7.5
16.4
0.6
1.9
7.69
11.9
15
0.5
1.8
6.94
10.7
16.4
0.55
1.96
6.94
11.9
3.03
96.2
29.63
7.47
4.5
49.7
52.91
58.07
51.84
53.55
TARGET PRICE
PHILIP MORRIS
INTERNATIONAL
BUSINESS OVERVIEW
 Philip Morris International is the leading international
tobacco company, with seven of the world’s top 15
international brands, including Marlboro, the number one
cigarette brand worldwide.
 PMI’s products are sold in more than 180 countries. In 2012,
the company held an estimated 16.3% share of the total
international cigarette market outside of the United States,
or 28.8% excluding the People’s Republic of China and the
United States.
PMI GLOBAL MARKET SHARE
35%
30%
PMI Global Market Share
Marlboro Global Market Share
28.8%
28.3%
27.6%
25%
20%
15%
10%
9.1%
9.2%
9.3%
5%
0%
2010
*Excluding the People’s Republic of China and the USA
Source: 2012 annual report
2011
2012
BUSINESS SEGMENTS
 Philip Morris International operates outside the United
States. The four major business segments are:
 European Union
 Eastern Europe
 Middle East & Africa (“EEMA”)
 Asia and Latin America & Canada (“LA&C”).
2012 PMI RESULTS BY REGION
Net Revenues: $31.4 billion
Asia
36%
LA&C
11%
EU
27%
EEMA
26%
Adjusted OCI: $14.2 billion
Asia
37%
LA&C
8%
EU
29%
EEMA
26%
OPPORTUNITIES & RISKS
 Opportunities
 Risks
 Organic volume growth
 Challenging regulatory
 Emerging market
environment
 Unfavorable foreign
exchange
momentum
 China
 Favorable financing
 Stable dividend yield and
continuing share
repurchase
INCOME STATEMENT PROJECTIONS
Segment
(millions)
Net Sales (including excise tax)
European Union
Eastern Europe, Middel East & Africa
Asia
Latin America & Canada
Total
Net Sales (excluding excise tax)
Consensus
Sales Growth
European Union
Eastern Europe, Middel East & Africa
Asia
Latin America & Canada
Total
FY
2015E
FY
2014E
FY
2013E
FY
2012
FY
2011
25,788
24,736
27,031
10,120
87,675
36,150
26,863
21,890
24,135
9,921
82,809
33,686
34,600
27,982
19,372
21,549
9,727
78,629
31,539
33,100
27,338
19,272
21,071
9,712
77,393
31,377
29,768
17,452
19,590
9,536
76,346
31,097
-4.00%
13.00%
12.00%
2.00%
5.88%
-4.00%
13.00%
12.00%
2.00%
5.32%
-6.00%
11.00%
10.00%
2.00%
2.99%
-8.16%
10.43%
7.56%
1.85%
1.37%
6.12%
9.57%
28.59%
12.19%
12.75%
DCF
MULTIPLE VALUATION
Target
Current
Multiple
Target
E, S, B, Target Price
/Share
Absolute
Valuation
High
Low
Median
P/Forwar
dE
24.1
9.9
15.8
24.1
20.0
5.7
113.4
P/S
4.7
1.1
1.7
4.7
3.0
47.2
141.7
P/B
P/EBITD
A
P/CF
62.3
5.8
15.9
56.2
40
1.8
72.7
14.1
5.5
9.8
14.1
11.0
9.0
99.6
21.8
8.8
14.1
21.1
18
5.7
102.0
FINAL PRICE TRIANGULATION
Valuation Method
P/E
P/S
P/B
P/EBITDA
P/CF
DCF
Final Target Price
Current Price
Upside
Target Price
113.40
141.70
72.70
99.60
102.00
109.08
Weight
6%
2%
8%
8%
6%
70%
$ 106.00
$ 92.72
14.3%
RECOMMENDATION
RECOMMENDATION OVERVIEW
PM
CVS
WMT
DIV
ER
UPSIDE
3.7%
1.60%
2.5%
14.3%
10.60%
12.2%
18.0%
12.2%
14.0%
 CVS -sell 100 basis points
 WMT - sell 35 basis points
 PM - sell 10 basis points
Q&A