Company Presentation: Financials
Rahul Choudhry, Xiangyuan Li,
Jiachen Wang, Shunxian Zou
1. Overview &
Recommendation
2.
Lincoln Financial
J.P. Morgan Chase
Agenda
4. Summary
3.
Wells Fargo
Bank of America
Sector Overview
Recall Sector Recommendation: HOLD
www.themegallery.com
Company name
Company Holdings Recommendations
Company
Total
www.themegallery.com
Current SIM
Allocation
Buy/Sell
Recommendation
Recommended SIM
Allocation
2.63%
Hold
2.63%
3.85%
Sell 50 bps
3.35%
4.00%
Hold
4.00%
2.40%
Buy 50 bps
2.90%
12.88%
Hold
12.88%
Company name
Lincoln Financial Group
Business Overview
Stock information:
Current Stock Price: 20.56
Sector: Financial
Industry: Life Insurance
Market Cap: 5.87B
Shares outstanding: 301.67M
Average Daily Volume: 3.79M
Div yield: 1.50%
Beta: 2.42
Analyst recommendation:
Analyst rating: Hold
Target price: 24.37
Current weight:2.63%
Recommended Weight:2.63%
Business Overview
Annuities
Retirement
Solutions
Lincoln
Financial Group
Insurance
solutions
Defined
Contributions
Group
Protection
Life Insurance
Sales Distribution By Segment
(2011)
Earnings Distribution By Segment
(2011)
7%
18%
27%
41%
Annuities
Defined Contribution
Defined Contribution
Life Insurance
10%
45%
Annuities
Life Insurance
41%
Group Protection
Group Protection
11%
Data Source:
Bloomberg Terminal
Company
strength
• Strong operating fundamentals
• Significant capital flexibility
• Diversified products
Concerns
• High earnings exposure to
interest rate sensitive products
• Sales are likely to remaining
weak in 2012
Valuation Analysis – Multiples,
industry
Stock Valuation
Relative to
Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Data Source:
High
Low
Median
Current
1.3
0.99
1.1
1.7
1.5
0.42
0.40
0.4
0.5
0.4
0.89
0.87
0.8
1.2
0.9
0.73
.79
0.6
0.9
0.8
Thomson Reuters Baseline
Valuation Analysis - Multiples
Data Source:
Bloomberg Terminal
Valuation Analysis – Multiples, S&P 500
Relative to S&P
500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Data Source:
High
Low
Median
Current
0.86
0.83
0.6
1.4
1.2
0.17
0.14
0.2
0.2
0.2
0.65
0.61
0.4
1.0
0.9
0.42
0.43
0.2
0.5
0.6
Thomson Reuters Baseline
Final Valuation
Absolute
High
Valuation
P/Forward
E
P/S
P/B
Low
*Your
#Your Target
Median Current Target E, S, B,
Multiple etc/Shar
e
Your
Target
Price
Weight
Weighted
Price
(F x G)
13.2
1.8
10.4
5.8
6.9
4.21
29.05
0.1
2.905
2.2
1.8
0.2
0.2
1.3
1.2
0.6
0.5
0.8
0.7
36
45
28.8
31.5
0.1
0.4
2.88
12.6
P/EBITDA
35.1
1.66
6.59
2.55
5
5.78
28.9
0
0
P/CF
13.6
2
9.5
5.7
8.5
3.54
30.44
0.1
3.044
21.429
Weighted Average Stock Price
Data Source:
Thomson Reuters Baseline
Multiples 70% weight =0.7*21.429 = $15
Current Price: $20.56
DCF Valuation 30% weight=0.3*31.24 = $9.37 Upside/Downside%: 18.53%
Final Target Price = $24.37
Recommendation: HOLD
J.P. Morgan Chase




On May 10, 2012 JPM declared that the firm’s
Chief Investment Office suffered $2B in trading
losses.
Stock declined 20.2% ($40.74  $32.51) till
date.
Significant attention from regulators.
‘Black Eye’ for JPM’s reputation in Risk
Management.
JPMorgan
Chase & Co is a leading global financial services firm
and one of the largest banking institutions in the United States,
with operations worldwide.
2.3T
in assets and $127.49 billion in stockholders’ equity.
Stock information
Ticker: JPM
Sector/Industry: Financials/Money Center Banks
Stock Price(USD): 33.49
52 WEEK(USD): 27.85 – 56.49
Mkt Cap(USD): 127.49B
Avg Daily Volume: 41.30M
Beta: 1.26
Shares: 3.81B
Analyst Opinion
Average Recommendation:
OVERWEIGHT
Number of Ratings: 37 (Buy 21, Overweight 6, Hold 9, Under 1
Sell 0)
Average Target Price (USD): 49.91
Price Target (USD): 50.61 (MEAN), 58 (HIGH), 37 (LOW)
5 YEAR
1 YEAR
Source: http://quotes.wsj.com/JPM/interactive-chart#
Corporate/Private
120,000
Equity
Asset management
100,000
80,000
Treasury and Security
60,000
Services
Commercial Banking
60,000
50,000
40,000
30,000
20,000
40,000
Card Services & Auto
20,000
Retail Financial Services
2007
2008
2009
2010
2011
Investment Banking
10,000
(10,000)
2007
2008
2009
2010
2011
Managed Entity Sales (% of
Managed Entity Earnings (% of
Total) 2011
Total) for 2011
Investment Banking
Retail Financial
4%
10%
5%
Services
26%
8%
6%
Card Services & Auto
Investment Banking
0%
Retail Financial
7%
Services
28%
11%
Commercial Banking
Commercial Banking
Treasury and Security
Treasury and Security
Services
Services
19%
27%
Card Services & Auto
Asset management
Corporate/Private
Equity
30%
19%
Asset management
Corporate/Private
Equity
Source: http://quotes.wsj.com/JPM/interactive-chart#
Fortress balance sheet with $2.3T in assetts.
Largest among all the banks worldwide.
Consistently passed the regulators stress
tests.
Increased regulations that would limit the
banks activities and hurt earnings.(Basel,
Dodd Frank, Volcker). JPM’s gold standard
image in risk mgmt tarnished after $2B
trading losses.
Credit card sales volume increased by 11% in
2011. Total deposits of $1.1 T, an increment
of 21% over 2010.
Euro-zone crisis. Exposure of $ 15B to the
distressed nations in the Eurozone. Decline
in M&A activity within Europe since mid
2011 due to uncertainty.
Highly diversified portfolio with variety of
products and services under several lines of
business.
High litigation costs. WaMu one of the
largest subprime loans issuer. Bear Stearns
was also heavily involved in MBS.
#1 ranked in Global Investment banking fees
for 2011.
Operation Twist – Flattening of yield curve.
Global Player. Operates in 60 countries
worldwide. Mitigates the risk.
Occupy Wall Street movement against bank
bailouts, CEO compensation, poor economy
& home foreclosures. JPM also in category of
“Too Big to Fail” banks.
Terminal Discount Rate and FCF
Recommendation: Sell 50 basis points.
Wells Fargo
Business Overview
• American multinational diversified financial
services company
• Fourth largest bank by assets
• Largest bank by market capitalization
• Three business segments: Community Banking;
Wholesales Banking; Wealth, Brokerage and
Retirement
Stock Overview
Stock Information:
(As of 5/20/2012)
Ticker: WFC
Sector: Financial
Industry: Money Center Bank
Market Cap: 164.41B
Current Stock price: 31.4
Current SIM Weight: 4.00%
Beta: 1.25
52 Week range: $22.58-$34.59
Source:
finance.yahoo.com
Pros and Cons
Positive signs:
Risks:
• Strong performance on
profit
• Acquisition of BNP Paribas
• Agreement to acquire
Merlin Securities, LLC
• Good reputation on local
community
• possibly violating antidiscrimination laws in
homeowner financing
• highly sensitive to interest
rates
• The increased regulation and
continuing litigation
• Poor economic growth or even
recession
DCF Valuation
Conservative
Assumption
Relative 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
Low
1.3
1.2
1.9
1.4
1.2
Low
Low
Median
Current
0.16
0.71
0.8
0.8
0.4
1.2
1.6
1.3
3.4
1.7
High
Median
1.1
1.1
1.3
1
1
Median
Current
0.58
0.66
0.5
1.2
0.7
Current
0.96
0.92
0.9
0.9
1
0.82
0.81
0.9
2.2
0.9
0.85
0.73
0.6
1.7
1.1
Target Multiple Target E, S, B,
etc/Share
Target
Price
(F x G)
P/Forward E
24.1
8.1
13.1
9.8
10
3.08
30.8
P/S
4.4
0.9
3.3
2.1
2.74
15.4
42.2
P/B
3.3
0.8
2.6
1.3
1.5
24.64
36.96
10.92
4.13
5.93
5.95
5.9
4.5
26.55
13.1
5.1
10
9.9
10.5
3.08
32.34
P/EBITDA
P/CF
Overall Valuation
Valuation Methods
Current Target
Weight
P/Forward E
30.8
P/S
42.2
P/B
36.96
P/EBITDA
26.55
P/CF
32.34
DCF
39.69
Weighted Target
35.91
0.1
0.1
0.4
0.1
0.1
0.2
Analyst Consensus
Price Target Summary
Mean Target:
38.18
Median Target:
38
High Target:
43
Low Target:
32
My Target: 35.91
Current Price: 31.4
Upside Potential:
14.36%
Source: 4traders.com
Technical Analysis
Source:
finance.yahoo.com
Recommendation
•
•
•
•
Unit Cost: $29.49
Current Price: $31.4
Target Price: $35.91
% of SIM: 4.00%
Bank of America
Stock Overview
General Information
• Ticker: BAC
Analyst Opinion
•
•
•
•
Industry: Div. Financial Services
•
Market Cap: 76 Billion
Highest Target: $14.50
• Beta: 1.96
Lowest Target: $6.20
•
Median Target: $10.00
Current Price: $7.02
Stock Overview
2011 Segment Revenue & Net Income (in billions)
30
20
10
0
-10
-20
Consumer & Consumer
Business
Real Estate
Banking
Services
Global
Banking
Revenue
Global
Markets
Net Income
Global
Wealth &
Investment
Management
All Other
Business Overview
Strengths
Weaknesses
Strong Investment Banking
Litigation Expenses
Leading Consumer Banking
Non-performing Assets
Opportunities Threats
Recovering U.S. Economy
Regulation & Europe Crisis
Significant Cost Cutting
Tightening Yield Spreads
Financial Analysis
Growth
Estimates
Fundamentals
DCF Analysis
Multiple Analysis
Multiples
High
Low
Median
Current
Target
Price
P/Forward E
83.0
6.0
11.0
8.6
10
6.71
P/S
3.8
0.3
2.9
0.8
1.6
14.58
P/B
2.8
0.1
1.7
0.35
0.6
11.90
P/CF
43.5
2.7
10.3
5.0
7.5
10.53
Measure
Weight
DCF
15%
P/Forward E
15%
P/S
15%
P/B
40%
P/CF
15%
Target Price
$11.26
Upside Potential: 60.41%
Comparable Analysis
P/Trailing E
Bank of
America
6.4
Wells
Fargo
10.7
J.P.
Morgan
7.4
P/Forward E
8.6
9.2
P/B
0.35
P/S
P/CF
Multiples
Industry
Sector
7.2
10.6
7.3
7.2
10.0
1.2
0.7
0.5
0.9
0.8
2.0
1.3
1.0
1.4
5.0
9.2
5.7
5.5
8.5
Comparable Analysis
(in billions)
European Exposure (Hedging Incorporated)
Wells Fargo
29.9
J.P.Morgan
12.5
Morgan Stanley
10.1
Bank of America
9.8
Goldman Sachs
5.2
0
5
10
15
20
25
30
35
Comparable Analysis
Total Capital Ratio
18%
17.40%
17.49%
17.10%
17%
16%
15.60%
15.13%
15%
14%
Wells Fargo
J.P.Morgan
Goldman Sachs Morgan Stanley
Bank of
America
Econ. & Tech. Analysis
Recommendation
Catalyst
Risks
Recovering U.S. Economy
Regulation & Europe Crisis
Significant Cost Cutting
Tightening Yield Spreads
Recommendation:
Buy 50 basis points
Increase weight from 2.40% to 2.90%
Company Holdings Recommendations
Company
Total
www.themegallery.com
Current SIM
Allocation
Buy/Sell
Recommendation
Recommended SIM
Allocation
2.63%
Hold
2.63%
3.85%
Sell 50 bps
3.35%
4.00%
Hold
4.00%
2.40%
Buy 50 bps
2.90%
12.88%
Sell 40 bps
12.88%
Company name
Q & A
Any Questions?