Stock Analysts
Member
Contact Information
Daniel Krikorian
krikorian_4@fisher.osu.edu
Scott Cloud
cloud_50@fisher.osu.edu
Meng Jin
Jin_259@fisher.osu.edu
Hongfei Jiang
Jiang_490@fisher.osu.edu
Xia Jiang
jiang_485@fisher.osu.edu
Agenda
Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Recommendations
 Industrials
 Includes companies whose businesses are dominated by one of the
following activities: The manufacture and distribution of capital goods,
including aerospace & defense, construction, engineering &
building products, electrical equipment and industrial machinery.
The provision of commercial services and supplies, including printing,
environmental, office and security services. The provision of
professional services, including employment and research & consulting
services. The provision of transportation services, including airlines,
couriers, marine, road & rail and transportation infrastructure.
(Source: GICS)
 Market Cap : $1.339 trillion
 Industries
 Air Freight & Logistics
Industrial Conglomerates
 Airlines
Railroads
 Building Products
 Commercial Printing
 Construction / Engineering
 Electrical Components
Industrial & Construction Machinery
Data Processing, Environmental Services
Farm Machinery
 Index Weighting
(As of March 30, 2012)
 Index Weighting (Continued)
 Performance
 Largest Companies
 Performance Drivers
• Gross Domestic Product
• Government Spending
– Military, Infrastructure
• Government Regulation
• Commodity Prices
– Oil, Metals
• Manufacturing Capacity Utilization
• Business Capital Expenditures
 Current Phase of Life Cycle
•
•
Mid-to-Late Cycle
– Maturity Phase
Growth
– Opportunities
• M&A; Technology
– Tracking GDP
– Earnings Growth
 External Factors
• Risks
– Government Regulation
• Environmental, Labor
– Rising Input Costs
• Raw materials, Labor
– Europe and U.S.
• Slow growth, military scale-downs
• Opportunities
– Demand for new technology
– Emerging markets
 Five Forces Analysis
Industry Force
Factors
Strength /Favorability
Barriers to Entry
Significant start-up costs; established
distribution/dealer networks; patents, proprietary
technology, R&D competency
High
(+)
Buyer Power
Many unique/differentiated products; few substitutes
for specialized equipment; competitive bidding; costplus contracts
Moderate
( +/- )
Supplier Power
Raw material inputs commodities (metals, silicon);
market prices; low acquisition cost per unit
Low
(+)
Substitutes
Specialized (e.g., engines, electronics, specialized
equip.) and unspecialized (chemicals, materials,
electrical) products
Moderate
( +/- )
Rivalry Intensity
Intense competitive bidding; numerous players in
each segment; competition across price and quality
dimensions
High
(-)
 S&P 500 Price Index – highly correlated
 Real GDP
 Labor Market
 Production

New Manufacturing Orders

Real Capital Spending: Equipment & Software
 Oil Price; PPI on aluminum, steel, gasoline, etc.
 Equity Market
 GDP & Contributions
 Labor Market
 Production
 Production
 Oil Price
 PPI: Aluminum
 PPI: Steel
 PPI: Gasoline
 Sector Revenue
 Revenue growth by Major Industries
 Sector EPS
 EPS in major industries
Major Industries
(10-year)
Median EPS
Current EPS
Median Growth
Rate
Aerospace/ Defense
23.15
31.16
10.8%
Machinery Industrial
22.61
33.95
17.2%
Machinery Construction
31.97
53.19
27.6%
Electrical Component
20.00
27.56
18.3%
Conglomerate
17.51
16.61
6.8%
 Sector Net Profit Margin
 Net Profit Margin in Major Industries
 Sector ROE Margin
 Sector Cash Flow per Share
 Sector
Absolute Basis
High
Low
Median
Current
P/Trailing E
25.4
7.1
18
14.8
P/Forward E
21.3
9.2
16.4
13.4
P/B
4.4
1.4
3.1
2.8
P/S
1.6
0.6
1.4
1.2
P/CF
14.2
6
11
10.1
Relative to SP500
High
Low
Median
Current
P/Trailing E
1.2
0.66
1.1
1.1
P/Forward E
1.2
0.84
1
1
P/B
1.4
0.9
1.1
1.3
P/S
1.1
0.8
1
1
P/CF
1.2
0.8
1.1
1.1
 Industry
Industry
Aerospace/Defense
Relative
median
current
median
current
median
current
median
current
median
current
P/Trailing E
16.4
13.6
27.6
7.6
15.9
13.2
20.4
17.3
17.3
14.9
P/Forward E
16.1
13.6
16
13.1
14.1
10.9
18.1
15.6
16.4
13.6
P/B
3.1
3.6
2.8
2.3
4
4.3
3.8
3.6
3.1
2
P/S
1
1
1.4
1.3
0.9
1.1
1.7
1.8
1.9
1.5
P/CF
11.4
10.1
11.4
10.8
9
9
13.4
13.2
11.6
9.6
Industry
Aerospace/Defense
Machinery Industrial Machinery Const/Farm Electrical Component
Machinery Industrial Machinery Const/Farm Electrical Component
Conglomerates
Conglomerates
SP500
median
current
median
current
median
current
median
current
median
current
P/Trailing E
1
0.99
1.1
1.1
1
0.97
1.2
1.3
1
1.1
P/Forward E
0.99
0.99
1
0.96
0.94
0.79
1.1
1.1
1
0.99
P/B
1.2
1.6
1
1
1.4
1.9
1.5
1.6
1.1
0.9
P/S
0.7
0.8
1
1
0.6
0.9
1.2
1.4
1.3
1.2
P/CF
1.1
1.1
1.1
1.2
0.9
1
1.3
1.4
1.1
1
We recommend to re-allocate Industrials to M arket W eight (+ approx. 3%).
Pros
 Moderately growing economy will benefit
cyclicals
 Attractive Valuation
Cons
 Potential for economy to backslide
 Europe/China concerns