The Industrials Sector
The Ohio State University SIM Program
Analysts
Company
Name
Contact information
Danaher
Nicole Heffle
heffle.1@osu.edu
Joy Global
Dun Hou
hou_49@fisher.osu.edu
Waste Connections
Meng Jea Joo
joo.50@osu.edu
Caterpillar
Jingyuan Huang
huang.1039@osu.edu
Agenda
 Overview – Industrials Sector
– Class Recommendation
 Review – Current SIM Holdings
– Industrials Stock Recommendation
 Stock – Valuation & Analysis
 Conclusion & Recommendation
Overview of the Sector
Sector Overview
 Market Cap = $1.428 Trillion
Industries
Aerospace & Defense
Electrical Equipment
Air Freight & Logistics
Industrial Conglomerates
Airlines
Machinery
Building Products
Marine
Commercial Services & Supplies
Professional Services
Construction & Engineering
Road & Rail
 Major Companies
GE, United Technologies Corp, 3M, Caterpillar, Beoing
Recent Sector Performance
Last Year
Last Quarter
 Earnings Per Share
 Up 8.0%
 Earnings Per Share
 Up 5.78%
 Revenues (% Change)
 5.0%
 Revenues (% Change)
 5.65%
Current SIM Portfolio
 Recommendation: + 60 BPS, 10.85%
 Class Vote: +100 BPS
SIM Industrials Holdings
Team Recommendation
 Current SIM Portfolio & Recommendation
Security
Unit
Cost
Market
Price
Quantity
Unrealized
Gain/Loss
% of
Assets
Recom.
Danaher Corp.
$51.34
$62.15
6,200
$67,022
3.55
+45 BPS
Joy Global
-
$60.97
Waste
Connections
$ 33.39
$35.98
10,000
$25,900
3.23
+50 BPS
Caterpillar
$110.28
$86.97
4,200
$(97,902)
3.70
+50 BPS
Currently Not Owned
by SIM
BUY
Stock Analysis
Danaher
Company Overview
 Founded in 1969 and is headquartered in Washington, DC
 Designs, manufactures, and markets professional, medical,
industrial, and commercial products and services primarily
throughout North America, Europe, Asia, and Australia
 Operates in 5 Segments
1. Test & Measurement
2. Environmental
3. Dental
4. Life Sciences and Diagnostics
5. Industrial Technologies
 Maintains growth through external acquisitions
Key Statistics
 Industry: Electronic Equipment
 Market Cap: $42.55 Billion
 Current Stock Price (as of March 26): $61.84
 52 Week Range: $49.18 – $62.90
 Recommendation: BUY 45 basis points
Facts about DHR Stock
 Revenue growth has outpaced the industry average of 2.1%
 Large financial position with reasonable debt levels
 Debt-to-equity ratio at 0.28, below industry average
 Growth in EPS
 12.7% improvement in most recent quarter
 Increase in Net Income
 Exceeded S&P and Industrial Conglomerates average
 Currently increased by 10.4% in most recent quarter
 Expanding profit margins
 Gross profit margin at 56.30%
 Net profit martin is 12.67% above industry average
Positives vs. Negatives
of the Stock
Positives
Negatives
 Favorable secular growth
1. Aging population
(medical technologies)
2. Water Scarcity (water
quality)
3. Environmental Concerns
4. Energy Efficiency
 As Danaher grows,
maintaining their
growth will become
difficult unless they can
identify larger
acquisition
opportunities
 Declining Cyclicality
 Achieve growth both
organically and through
acquisitions = going well!
 Growth-oriented
products/segments will
require more R&D
DHR vs. S&P 500 12 months
Valuation-Multiples
Experts Opinion
Analysts
Opinion
Mean Target
$66.59
Median
Target
$68.50
High Target
$77.00
Low Target
$56.00
# of Brokers
22
Danaher
Recommendation
Target
Price
$67.89
Recommendation
BUY
45 BPS
4% of SIM
Security
Unit
Cost
Market
Price
Quantity
Unrealized
Gain/Loss
% of
Assets
Danaher Corp.
$51.34
$62.15
6,200
$67,022
3.55
Joy Global
Joy Global
Company Overview
 Over 90 years experience as a global leader in the
development, manufacture, distribution and service of
underground mining machinery for the extraction of coal
and other bedded materials.
 The world’s second-largest maker of mining equipment
 2 lines of business: Underground Mining Machinery &
Surface Mining Equipment.
 Key Driver of Sales: Emerging Markets
 Major Competitors: Caterpillar Inc, Deere & Company and
Komatsu Ltd.
Joy Global
Financial Analysis
2012 Summary
 Net sales for 2012 rose to $5.66 billion, a 28.5% increase from 2011
 Underground mining machinery sales rose 20.6%
 Surface mining equipment sales rose 39.7%
 Operating income rose 27.4% to $1.2 billion
 Original equipment sales rose 51.8%
 After-market sales rose 12.7%
Joy Global
Financial Analysis
2013 First Quarter Earnings Highlights
 Earnings per share came in at $1.33 versus estimates of $1.14
 Revenues were $1.15 billion versus estimates of $1.08 billion
 Management backed full year estimates for earnings per share
of between $5.75 and $6.35 on revenues of $4.9 to $5.2 billion
 The quarterly dividend was maintained at $0.175 per share
Joy Global
Stock Dynamic Chart
Joy Global
DCF Valuation
Year
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
Revenue
5,118
5,338
5,780
6,243
6,711
7,181
7,648
8,106
8,512
8,852
% Growth
4.3%
Operating Income
954
Operating Margin
18.6%
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
19.6%
% of Sales
1,459
1,532
18.0%
18.0%
1,593
18.0%
1,641
18.0%
(47)
(50)
(53)
(55)
(58)
(59)
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
276
303
346
372
390
395
398
422
443
461
475
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
645
707
807
867
909
922
929
985
117
4,439
4,777
9,216
11.33%
10.3
14.3
7.2
9.6
107
62.13
86.13
38.6%
14.2%
127
7.5%
125
4.8%
134
1.5%
144
0.7%
153
1,034
6.0%
162
5.0%
170
1,075
4.0%
177
1,107
3.0%
182
2.2%
2.2%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
(124)
(248)
(125)
(126)
(126)
(124)
(122)
(106)
(89)
(68)
-2.3%
-4.3%
-2.0%
-1.9%
-1.8%
-1.6%
-1.5%
-1.3%
-1.0%
-0.8%
214
231
218
201
180
153
162
170
177
182
4.0%
534
-29.2%
$
$
18.0%
(44)
753
Shares Outstanding
1,377
3.0%
-0.7%
% Growth
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
19.0%
9,118
(41)
4.0%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
1,364
4.0%
-0.7%
4.5%
Free Cash Flow
20.0%
5.0%
(38)
205
Capex % of sales
1,342
6.0%
-0.7%
230
Subtract Cap Ex
20.5%
6.5%
(35)
2.2%
Plus/(minus) Changes WC
1,280
7.0%
-0.7%
113
% of Sales
20.6%
7.5%
(33)
9.6%
Add Depreciation/Amort
1,190
8.0%
-0.7%
% Growth
Current Price
Implied equity value/share
Upside/(Downside) to DCF
1,044
8.3%
TERMINAL
2023E
4.0%
530
-0.6%
48%
52%
100%
3.5%
695
31.2%
3.0%
757
8.9%
2.5%
795
5.0%
2.0%
831
4.5%
2.0%
889
2.0%
950
7.0%
6.9%
2.0%
1,005
5.8%
Terminal Value
Free Cash Yield
9.4
13.0
6.6
8.8
8.2
11.4
5.8
7.8
2.0%
1,054
4.8%
13,564
7.77%
Terminal P/E
12.2
Terminal EV/EBITDA
8.0
Joy Global
Multiples Valuation
Absolute
Valuation
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
Low
B.
36.7
4.1
12.5
27.88
42.3
C.
5.0
0.4
1.5
2.99
4.2
Median
Current
D.
16.6
1.8
5.6
11.74
15.3
#Your
Target
Multiple
E.
10.1
1.2
2.7
5.16
7.5
Final Target Price: $86.10
Current Price: $60.97
Upside Potential: 41.2%
F.
14.5
1.8
4.5
11.74
5.02
*Your
Target E,
S, B,
etc/Share
Your Target
Price
(F x G)
G.
H.
6.02
47.83
20.16
7.62
15.3
87.29
86.10
90.72
89.46
76.81
Joy Global
Recommendation
Target
Price
Recommendation
$86.10
BUY
 Rumors: M&A with GE
 China Coal Miner Demand to Gain as Power Use Rises
 Goldman Sachs’ 10 stocks with most upside potential
Waste Connections
Waste Connections
Business Analysis
 Industry: Waste Management
 Business Segments
Business Line
$ Mil.
% of Total
1,176
62.1
Disposal & Transfer
525
27.7
E&P Treatment, Disposal & Recovery
62
3.2
Recycling
82
4.3
Intermodal and Other
50
2.7
(233)
-
1,662
100
Collection
Less: Intercompany Elimination
Total
Waste Connections
Business Analysis
 About 2 million commercial, industrial, and residential
customers in 29 states.
Waste Connections
Business Analysis
 Economics
 Rebound in Housing
 Expanding Commercial Construction
 Improved Manufacturing Purchasing Managers Index (PMI)
 Pros
 Nationwide demand for Waste Management
 Threats of Substitute - Low
 Cons
 Strong Competition among big players
 Cyclical to economic condition
Waste Connections
Business Analysis
Waste Connections
Business Analysis
Waste Connections
Business Analysis
Release of 10-K
Waste Connections
Business Analysis
Waste Connections
Financial Analysis
 Market Cap: $ 4.5 B
 Current Stock Price: $ 35.98
 52 Week Range: 28.70 – 36.56
 2012 Sales: $ 1.66 B
 1-Year Sales Growth: 10.38%
 2012 Net Income: $159.09 M
 1-Year Net Income Growth: (3.72%)
 Dividends Yield: 1.06% ($0.40)
Waste Connections
Financial Analysis
Waste Connections
Financial Analysis
Waste Connections
Financial Analysis
 Per Share Data
Waste Connections
Financial Analysis
 Profitability
Waste Connections
Financial Analysis
 Financial (Capital Structure)
Waste Connections
Financial Analysis
 Growth
Waste Connections
Valuation
Analyst: MENG JEA JOO
Date: 3/30/2013
Year
2012
Revenue
1,661,618
% Grow th
316,147
Operating Margin
19.0%
Interest and Other
(51,044)
Interest % of Sales
-3.1%
Taxes
105,443
Tax Rate
39.8%
Net Income
159,660
% Grow th
193,584
% of Sales
11.7%
Plus/(minus) Changes WC
(24,372)
% of Sales
-1.5%
Subtract Cap Ex
153,517
Capex % of sales
9.2%
Free Cash Flow
168,432
% Grow th
408,260
1,973,595
2,540,541
4,514,136
3.84%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
27.5
28.3
12.9
13.2
Shares Outstanding
121,824
$
$
35.98
37.05
3.0%
2,238,935
23,212
0.19
5,076,026
44.1%
3.93%
2014E
2,177,384
12.0%
457,251
2015E
2,395,123
10.0%
526,927
2016E
2,526,854
5.5%
581,177
2017E
2,665,831
5.5%
639,800
2018E
2,812,452
5.5%
703,113
2019E
2,967,137
5.5%
741,784
2020E
3,130,330
5.5%
751,279
2021E
3,286,846
5.0%
755,975
2022E
3,418,320
4.0%
752,030
21.0%
21.0%
22.0%
23.0%
24.0%
25.0%
25.0%
24.0%
23.0%
22.0%
(48,602)
(54,435)
(59,878)
(63,171)
(66,646)
(70,311)
(74,178)
(78,258)
(82,171)
(85,458)
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
143,036
39.8%
216,622
233,291
12.0%
27,738
1.4%
204,130
10.5%
248,424
47.5%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Debt
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital % of Growth
1,944,093
35.7%
Add Depreciation/Amort
10.3%
4.0%
Waste Connections
Valuation
2013E
17.0%
Operating Income
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Terminal Discount Rate =
Terminal FCF Growth =
160,200
39.8%
242,616
12.0%
261,286
185,745
39.8%
281,304
15.9%
275,439
206,011
39.8%
311,995
10.9%
290,588
227,943
39.8%
345,211
10.6%
306,571
251,665
39.8%
381,136
10.4%
323,432
265,507
39.8%
402,099
5.5%
341,221
267,660
39.8%
405,360
0.8%
359,988
267,972
39.8%
405,832
0.1%
377,987
39.8%
401,477
-1.1%
393,107
12.0%
11.5%
11.5%
11.5%
11.5%
11.5%
11.5%
11.5%
11.5%
(9,332)
(9,413)
(5,462)
(5,762)
(6,079)
(6,413)
(6,766)
(6,459)
(5,374)
-0.4%
228,625
10.5%
255,655
2.9%
44%
56%
100%
-0.4%
275,439
11.5%
276,043
8.0%
-0.2%
290,588
11.5%
308,942
11.9%
-0.2%
306,571
11.5%
341,990
10.7%
-0.2%
323,432
11.5%
377,739
10.5%
-0.2%
341,221
11.5%
398,514
5.5%
-0.2%
359,988
11.5%
401,579
0.8%
-0.2%
377,987
11.5%
402,222
0.2%
Terminal Value
Free Cash Yield
20.2
20.8
10.3
10.5
265,096
18.1
18.6
9.2
9.4
-0.2%
393,107
11.5%
398,473
-0.9%
6,630,593
6.01%
Terminal P/E
16.5
Terminal EV/EBITDA
7.7
Waste Connections
Recommendation
Target
Price
Recommendation
$38.36
BUY
Security
Unit
Cost
Waste
Connections
$ 33.39
50 BPS
Market
Quantity
Price
$35.98
10,000
3.73% of SIM
Unrealized
Gain/Loss
% of
Assets
$25,900
3.23
Caterpillar Inc
Overview
The company was founded in 1925 and is headquartered
in Peoria, Illinois.
Caterpillar Inc. manufactures and sells construction
and mining equipment, diesel and natural gas engines,
financial products and so on.
Major Business Segments
• Energy & Power Systems
• Construction Industries
• Resource Industries
• Financial Products
Rank 46 in FORTUNE 500 List in 2012
Key Statistics
Market Cap: $56.10 Billion
Current Stock Price: $85.64 (On 4/2/2013)
52 Weeks Range: $78.25 - $109.77
2012’s revenue rose to $65.88 Billion from $60.14 Billion in 2011
2012’s operating profit rose to 8.57 Billion from $7.15 Billion in 2011
P/E Ratio: 10.1
Key Statistics by Segments
Construction Industries
Sales in 2012 was $19.33 Billion; Drop by $333 Million compare with 2011
Profit in 2012 was $1.79 Billion; Drop by $267 Million compare with 2011
Energy & Power Systems
Sales in 2012 was $21.12 Billion; Increased by $1.01 Billion compare with 2011
Profit in 2012 was $3.43 Billion; Increased by $381 Million compare with 2011
Resource Industries
Sales in 2012 was $21.16 Billion; Increased by $5.53 Billion compare with 2011
Profit in 2012 was $1.79 Billion; Increased by $984 Million compare with 2011
Financial Products
Sales in 2012 was $3.09 Billion; Almost the same compare with 2011
Profit in 2012 was $763 Million; Increased by $176 Million compare with 2011
5-Year Total Return Caterpillar vs.
S&P 500 vs. S&P Machinery Index
Valuation - Multiples
Absolute
Valuation
High
Low
Median
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
40.1
1.7
7.4
15.48
14.2
C.
7.3
.3
2.4
2.23
2.8
D.
12.9
1.2
4.6
7.44
9.7
Current
11.9
.9
3.5
5.36
7.3
E.
Final Target Price: $108.9
Current Price: $86.97
Upside Potential: 25%
#Your Target
Multiple
10.5
1.8
5.2
12.67
8.56
F.
*Your
Target E, S,
B,
etc/Share
Your Target
Price
(F x G)
G.
H.
9.6
50.44
19.67
8.6
14
100.8
90.8
102.3
108.9
119.84
Caterpillar Inc.
Recommendation
High growth rate for the Energy & Power Systems segment
High demand of mining equipment from China
Recovering of the World’s economy
Caterpillar Inc.
Recommendation
Target
Price
$108.9
Recommendation
BUY
50 BPS
4% of SIM
Security
Unit
Cost
Market
Price
Quantity
Unrealized
Gain/Loss
% of
Assets
Caterpillar
$110.28
$86.97
4,200
$(97,902)
3.50
Recommendations
SIM Industrials Holdings
Team Recommendation
 Current SIM Portfolio & Recommendation
Security
Unit
Cost
Market
Price
Quantity
Unrealized
Gain/Loss
% of
Assets
Recom.
Danaher Corp.
$51.34
$62.15
6,200
$67,022
3.55
+45 BPS
Joy Global
-
$59.52
Waste
Connections
$ 33.39
$35.98
10,000
$25,900
3.23
+50 BPS
Caterpillar
$110.28
$86.97
4,200
$(97,902)
3.50
+50 BPS
Currently Not Owned
by SIM
BUY
Thank You
Q&A