CONSUMER GOODS - DISCRETIONARY Saif Almashghouni

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CONSUMER GOODS DISCRETIONARY
Saif
Almashghouni
Xuyi Chen
Megan
Weidrick
1. SECTOR REVIEW
2. BUSINESS ANALYSIS
3. ECONOMIC ANALYSIS
4. FINANCIAL ANALYSIS
5. VALUATION ANALYSIS
GAME PLAN
SECTOR BREAKDOWN
S&P 500
 S&P 500: 10.94%
 SIM portfolio is underweight
by ~ 3.15%
SIM
 SIM: 7.79%
INDUSTRIES IN SECTOR & SIM
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






Automobile Manufacturers
Cable & Satellite
Hotels, Restaurants, & Leisure
Housewares Durables
Internet & Catalog Retail
Media
Multiline Retail
Restaurants
Textiles, Apparel, & Luxur y
Goods
 Automobile Manufacturers
 Cable & Satellite
 Retail
LARGEST COMPANIES IN SECTOR
McDonald's MCD
Home Depot HD
Comcast CMCSA
Walt Disney DIS
Amazon.com AMZN
Starbucks SBUX
Ford Motor F
News Corp NWSA
Lowe's LOW
Other
SIM COMPANIES
 Directv DT V - 9,400 shares
SIM COMPANIES
 Express Inc. EXPR – 12,000 shares
SIM COMPANIES
 General Motors GM – 21,500 shares
SECTOR PERFORMANCE – S&P
SECTOR PERFORMANCE - SIM
 Consumer Discretionary: 17.62% increase Y TD
 How is SIMS’s consumer discretionary sector performing
compared to S&P?
1/3/2012 4/25/2012
YTD
YTD%
DTV
$43.60
$47.60
+ $4.00 + 9%
EXPR
$20.24
$23.44
+ $3.20 + 16%
GM
$20.83
$22.89
+ $2.06 + 10%
 SIM Consumer Discretionary: average 12% increase Y TD,
underperforming
SECTOR REVIEW
 SIM consumer discretionary sector is 3.15% underweight
compared to S&P 500
 SIM consumer discretionary sector is underperforming by 5%+
compared to S&P 500
 What do we see for future of consumer discretionar y and what
implications for SIM?
1. SECTOR REVIEW
2. BUSINESS ANALYSIS
3. ECONOMIC ANALYSIS
4. FINANCIAL ANALYSIS
5. VALUATION ANALYSIS
GAME PLAN
BUSINESS ANALYSIS
Economic Cycle
 Early expansion
Market Cycle
 Transition from Market
Bottom to Bull Market
 Slow growth
Business Cycle
 Mature industry
 Many players
 Brand power
 New entrants are
short-lived
MORNING
STAR®
Y TD
SECTOR
LEADERS:
1. TECH
19.60%
2. CONSUMER
– C YC L I C A L
17. 6 2 %
3. FINANCIAL
S E RV I C E S
15.25%
BUSINESS ANALYSIS - DEMAND
Demand for Consumer Discretionary Goods/Services:
 Demand-side story, supply -side will always make discretionar y
goods/services available if demand is there
 ‘Consumer Discretionary’ = sector of economy that consists of
businesses that sell NONESSENTIAL goods and services
 Sector most sensitive to economic cycles, goods are
NONESSENTIAL and are the first to be cut when economy lags;
highly cyclical
 Sector hurt in midst of recession, but making stronger returns
now. Sector making come back, higher performance than S&P
since January 2010.
 Expect high performance to persist, given –
 Further recovery of domestic market, consumer confidence
 Foreign expansion, new markets
 Worry of European demand lagging still
 Asian demand staying strong
 Technology advancements
 Online retail popularity
BUSINESS ANALYSIS - SUPPLY
 Extra capacity in many industries and companies, scaled back
during recession and ready for demand to pick back up
 Labor waiting in domestic and foreign market for demand to
pick back up
BUSINESS ANALYSIS - PRICE
 Currently prices of consumer discretionary have been severely
cut through discounts, etc. Consumerism picking up now but
most likely won’t see premiums like before recession.
 During the recession, companies became lean and shed a lot
of extra resources. Could offset the lower premium level.
 Also, companies focusing on foreign markets will continue,
which offers greatest growth opportunities. Companies
starting to segment products and learn which markets relate
to which product better.
 Sector not concentrated. Many different categories that
consumers purchase in with disposable income.
PORTER’S 5 FORCES
 Barriers to Entry –
Moderate
 Supplier Power – Low to
Moderate
 Rivalry – High
 Buyer Power – Moderate to
High
 High capital costs but not
insurmountable
 Easy to get consumers to pay
money for things, harder given
economic downturn
 Intense rivalry because of
downturn
 Price wars lately, heavy
discounts
 Substitutes – High
 When consumers have extra
money, they can pay off debt,
save, or spend
 Substitutes of saving or paying
off debt have attracted
consumers recently
 Inputs becoming more
expensive, natural resources
and fuel costly
 Globalization eroding
 Consumers hold a lot of power
in economic downturns
 Want to hold onto money, not
burning hole in pocket
1. SECTOR REVIEW
2. BUSINESS ANALYSIS
3. ECONOMIC ANALYSIS
4. FINANCIAL ANALYSIS
5. VALUATION ANALYSIS
GAME PLAN
Real GDP
Disposable Income
Consumer Confidence
Consumer Spending
Employment
Retail Sales
LEADING
ECONOMIC
INDICATORS
REAL GDP
DISPOSABLE INCOME
CONSUMER CONFIDENCE
CONSUMER SPENDING
EMPLOYMENT
RETAIL SALES
1. SECTOR REVIEW
2. BUSINESS ANALYSIS
3. ECONOMIC ANALYSIS
4. FINANCIAL ANALYSIS
5. VALUATION ANALYSIS
GAME PLAN
REVENUE GROWTH
EPS GROWTH
NET PROFIT MARGINS
ROE
SECTOR PERFORMANCE
NET PROFIT MARGIN - INDUSTRY
Net Profit Margin
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Automobiles
Cable &
Satellite
Hotels
Restaurants Household Internet &
restaurants
Durables Catalog retail
and Leisure
media
multiline
retail
textiles
apparel and
luxury goods
ROE - INDUSTRY
ROE
40%
35%
30%
25%
20%
15%
10%
5%
0%
Automobiles
Cable &
Satellite
Hotels
Restaurants
restaurants
and Leisure
Household
Internet &
Durables Catalog retail
media
multiline
retail
textiles
apparel and
luxury goods
1. SECTOR REVIEW
2. BUSINESS ANALYSIS
3. ECONOMIC ANALYSIS
4. FINANCIAL ANALYSIS
5. VALUATION ANALYSIS
GAME PLAN
SECTOR VALUATION
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
53.7
44.1
3.3
1.1
10.5
Low
13.9
13.0
1.5
0.4
5.7
Median
20.4
18.0
2.4
0.9
9.1
Current
17.4
16.1
3.3
1.1
10.3
Relative to
SP500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Low
Median
Current
3.9
3.0
1.5
0.9
1.1
1.0
1.0
0.7
0.5
0.7
1.2
1.1
0.9
0.6
0.9
1.3
1.2
1.5
0.9
1.1
AUTOMOBILE MANUFACTURERS - MAJOR
Relative to S&P Monthly High Monthly Low Median Current
P/E Trailing
0.81
0.27
0.42
0.44
P/E Forward
17.9
0.46
0.58
0.58
P/B
4.2
0.5
0.6
1.3
P/S
0.3
0.0
0.1
0.3
P/CF
0.5
0.1
0.3
0.4
CABLE & SATELLITE
Relative to S&P Monthly High Monthly Low Median Current
P/E Trailing
2.2
0.8
1.3
1.3
P/E Forward
1.6
0.81
1.0
1.0
P/B
1.4
0.7
0.9
1.4
P/S
1.5
1.0
1.2
1.1
P/CF
0.8
0.5
0.6
0.5
HOTELS, RESTAURANTS, & LEISURE
Relative to S&P Monthly High Monthly Low Median Current
P/E Trailing
2.6
0.58
1.7
1.6
P/E Forward
2.6
0.93
1.9
1.4
P/B
3.1
0.5
2.1
2.4
P/S
2.1
0.9
1.7
1.7
P/CF
2.3
0.6
1.3
1.3
HOUSEWARES DURABLES
Relative to S&P Monthly High Monthly Low Median Current
P/E Trailing
1.4
0.52
0.94
1.2
P/E Forward
1.1
0.7
0.93
0.81
P/B
1.3
0.5
0.8
1.3
P/S
1.2
0.5
0.8
1.0
P/CF
1.2
0.6
0.9
0.9
INTERNET & CATALOG RETAIL
Relative to S&P Monthly High Monthly Low Median Current
P/E Trailing
4.4
1.5
3.1
4.3
P/E Forward
4.0
1.9
2.6
4.0
P/B
6.3
1.0
3.4
4.6
P/S
2.1
0.7
1.4
1.7
P/CF
3.7
1.7
2.7
2.9
MEDIA
Relative to S&P Monthly High Monthly Low Median Current
P/E Trailing
1.3
0.67
0.98
1.1
P/E Forward
1.3
0.68
0.97
0.98
P/B
0.8
0.4
0.6
0.8
P/S
1.3
0.9
1.2
1.3
P/CF
1.2
0.4
0.7
1.2
MULTILINE RETAIL
Relative to S&P Monthly High Monthly Low Median Current
P/E Trailing
1.1
0.5
0.8
0.9
P/E Forward
1.8
0.81
1.0
1.1
P/B
1.1
0.5
0.8
1.1
P/S
0.5
0.2
0.3
0.3
P/CF
1.1
0.5
0.8
0.9
RESTAURANTS
Relative to S&P Monthly High Monthly Low Median Current
P/E Trailing
1.7
0.88
1.3
1.7
P/E Forward
1.6
0.86
1.2
1.5
P/B
3.8
1.7
2.9
3.6
P/S
2.6
1.4
1.9
2.5
P/CF
1.9
1.0
1.3
1.8
TEXTILES, APPAREL, & LUXURY GOODS
Relative to S&P Monthly High Monthly Low Median Current
P/E Trailing
1.7
0.67
1.0
1.6
P/E Forward
1.5
0.73
1.1
1.5
P/B
2.7
0.8
1.4
2.3
P/S
1.9
0.7
1.2
1.8
P/CF
2.1
0.9
1.3
2.0
RECOMMENDATIONS
 Given our current position of being underweight and
underperforming, changes….
 Overweight portfolio compared to S&P 500
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