Information Technology
Stock Presentation
Yijun Ge, Bret Rosenthal, Yang Shen,
Chengqiao Sun, Greg Van Wagnen, Ying Zhong
•
•
•
•
•
•
•
•
•
Information Technology Sector Review
Recommendations
Google (GOOG)
Intel (INTC)
Corning (GLW)
Oracle (ORCL)
Apple (AAPL)
Hewlett-Packard (HPQ)
Conclusion
• All information as of May 18th, 2012
Agenda
S&P Weight
SIM Weight
Information Technology
Sector Review
Source: standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--
Remain Overweight 106 Bps
Stock
Target Current
Recommended Potential Unrealized
Change
Price Weight
Weight
Upside Gain/Loss
GOOG
INTC
GLW
ORCL
$677.81
$31.05
$25.51
$34.45
382 bps
388 bps
452 bps
186 bps
Hold
Hold
Hold
Hold
382 bps
388 bps
452 bps
186 bps
12.9%
19.1%
81.9%
32.5%
$13,764
$112,748
($93,993)
($5,625)
AAPL
HPQ
$583.33
$34.41
463 bps
321 bps
-79 bps
+79 bps
384 bps
400 bps
9.9%
54.7%
$327,053
($253,105)
Recommendations
Google Inc.
• Global technology leader
specialized in Internet
search and advertising
technologies
• 32,467 employees
providing service in more
than 100 languages and in
more than 50 countries
• Products ranging from
internet-based services
and products up to
operating systems and
platforms
• Launched Google+ in
2011
Ticker
Current Stock Price
52-Week Range
Market Capitalization
Shares Outstanding
Beta
Dividend Yield
2011 Revenues
2011 Earnings
Industry
Google Overview
Source: finance.yahoo.com
2011 Google 10K
GOOG
$600.40
$473.02-$670.25
$206.84 Billion
326.01 Million
1.18
N/A
$37.9 Billion
$9.7 Billion
Internet Software &
Service
Google
Stock
Performance
5-Year: 55.87%
3-Year: 33.72%
1-Year: 18.56%
Year to Date: -5.48%
Source: finance.yahoo.com
Value Drivers
Risks
• Recognized Brand Name
• International expansion
• Continuous R&D and
New Products
• Intense competition
• Single revenue source
• Cloud Storage
• Google Glass
• Driverless Car
• Large market share
• Strong growth trend for
online advertising
• 96% of the revenue is from
advertising
• Legal concerns
• May be subject to
intellectual property claims
• Newly created products
are having trouble
Google Catalysts
2011
2010
2009
2008
2007
32.3%
25.7%
35.4%
29.0%
35.1%
27.6%
30.4%
19.4%
30.6%
25.3%
11.7%
18.7%
13.2%
20.7%
14.4%
20.4%
14.5%
16.6%
14.5%
21.2%
9.7%
10.7%
11.2%
12.6%
N/A
N/A
N/A
N/A
N/A
N/A
Profitability
Operating Margin
Net Profit Margin
Management Effectiveness
Return on Assets
Return on Equity
Solvency
Debt/Asset
Debt/Common Equity
ROE
Google vs S&P 500
Google vs Sector
25.0%
30.0%
20.0%
25.0%
20.0%
15.0%
15.0%
10.0%
10.0%
5.0%
5.0%
0.0%
0.0%
2007
2008
2009
GOOG
Source: Baseline
S&P 500
2010
2011
2007
2008
2009
GOOG
2010
Sector
2011
Year
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
Revenue
% Growth
45,783
53,960
17.9%
63,079
16.9%
73,172
16.0%
84,148
15.0%
95,929
14.0%
107,440
12.0%
118,184
10.0%
127,639
8.0%
135,297
6.0%
141,386
4.5%
Operating Income
Operating Margin
15,034
32.8%
17,870
33.1%
20,573
32.6%
21,952
30.0%
23,561
28.0%
24,941
26.0%
25,786
24.0%
26,001
22.0%
28,081
22.0%
29,765
22.0%
31,105
22.0%
458
1.0%
540
1.0%
631
1.0%
366
0.5%
421
0.5%
480
0.5%
537
0.5%
591
0.5%
638
0.5%
676
0.5%
707
0.5%
3,253
21.0%
3,866
21.0%
4,453
21.0%
4,687
21.0%
5,036
21.0%
5,338
21.0%
5,528
21.0%
5,584
21.0%
6,031
21.0%
6,393
21.0%
6,680
21.0%
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
% Growth
12,239
14,544
18.8%
16,751
15.2%
17,631
5.3%
18,946
7.5%
20,083
6.0%
20,795
3.5%
21,007
1.0%
22,688
8.0%
24,049
6.0%
25,131
4.5%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
2,289
5.0%
(1,021)
-2.2%
4,578
10.0%
2,698
5.0%
(1,047)
-1.9%
5,936
11.0%
3,154
5.0%
(1,167)
-1.9%
7,570
12.0%
3,659
5.0%
(1,466)
-2.0%
7,317
10.0%
4,207
5.0%
(1,581)
-1.9%
7,573
9.0%
5,276
5.5%
(1,682)
-1.8%
7,674
8.0%
5,909
5.5%
(1,615)
-1.5%
7,521
7.0%
6,500
5.5%
(1,480)
-1.3%
7,682
6.5%
7,020
5.5%
(1,279)
-1.0%
8,297
6.5%
7,441
5.5%
(1,017)
-0.8%
7,441
5.5%
7,776
5.5%
(797)
-0.6%
7,776
5.5%
Free Cash Flow
% Growth
9,120
10,508
15.2%
11,491
9.4%
12,803
11.4%
14,286
11.6%
16,239
13.7%
17,756
9.3%
18,500
4.2%
20,281
9.6%
23,091
13.9%
24,381
5.6%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
90,906
129,975
220,881
4.64%
41%
59%
100%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
16.1
18.0
11.0
12.4
13.5
15.2
9.3
10.5
Shares Outstanding
327
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$
600.40
$
675.06
Debt
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital % of Growth
Google DCF
12.4%
4,204
9,983
30.51
72,574
5.8%
13%
377,450
6.46%
11.7
13.2
8.0
9.1
15.0
9.6
Terminal Discount Rate =
Terminal FCF Growth =
11.25%
4.5%
Terminal FCF
Growth
$ 675.06
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
10.50%
$665.26
$694.16
$727.49
$766.39
$812.35
$867.51
$934.93
Terminal Discount Rate
10.75% 11.00% 11.25% 11.50%
$641.42 $619.10 $598.17 $578.51
$667.87 $643.38 $620.50 $599.08
$698.25 $671.12 $645.90 $622.39
$733.48 $703.13 $675.06 $649.03
$774.84 $740.48 $708.89 $679.77
$824.07 $784.61 $748.61 $715.64
$883.67 $837.57 $795.89 $758.02
Google
Sensitivity Analysis
11.75%
$559.99
$578.98
$600.42
$624.82
$652.83
$685.33
$723.47
12.00%
$542.54
$560.10
$579.86
$602.25
$627.84
$657.37
$691.82
Relative to
Industry
High
Low
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.3
1.9
5.7
3.1
3.6
0.9
0.6
1.0
0.6
0.9
Median Current
1.1
1.0
1.4
1.6
1.3
0.9
0.9
1.0
1.2
1.0
Absolute
Valuation
High
Low
P/Forward E
P/S
P/B
P/EBITDA
P/CF
61.2
29.0
56.3
108.3
167.7
13.3
4.6
3.0
11.3
12.7
Google
Valuations
Source: Baseline
Relative to
S&P
High
Low
P/Trailing E
P/Forward E
P/B
P/S
P/CF
6.4
3.7
17.7
19.2
15.1
1.2
1.0
1.4
3.9
1.5
1.5
1.6
2.7
7.3
2.3
Target Target /
Multiple Share
Target
Price
Median Current
23.6
8.6
6.5
22.9
24.0
13.3
4.9
3.2
11.3
13.6
17.5
5.1
3.9
13.1
15.3
37.2
139.0
176.7
52.7
44.2
Median Current
651.0
708.9
689.2
689.8
675.6
1.2
1.0
1.4
3.9
1.5
Google - Technical Analysis
• Target Price: $677.81
• Current Price (May 18, 2012): $600.40
• Potential Upside: 12.9%
• Hold
Metric
Target Price
Weight
$675.06
$651.00
$708.90
$689.25
$689.85
$675.65
65%
7%
7%
7%
7%
7%
DCF
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Google
Price Target
Unit Cost: $587.20
Unrealized Gain: $13,764
Intel Corporation
• World’s largest semiconductor chip
maker based on revenue
• Five operating segments:
•
•
•
•
•
PC Client Group
Data Center Group
Other Intel Architecture Group
Software and Service Group
All Other
• Major products includes:
microprocessors, chipsets,
system-on-chip products, wireless
connectivity products, mobile phone
component and platforms, etc.
• Founded in 1968; current 100,100
employees
Ticker
Current Stock Price
52-Week Range
Market Capitalization
Shares Outstanding
Beta
Dividend Yield
2011 Revenues
2011 Earnings
Industry
Intel Overview
Source: finance.yahoo.com
2011 Intel 10K
INTC
$26.07
$19.16-$29.27
$131.16 Billion
5.03 Million
1.01
3.20%
$54 Billion
$12.9 Billion
Semiconductor
Intel Stock
Performance
10-Year: -16.06%
5-Year: 18.19%
3-Year: 68.75%
1-Year: 9.67%
Year to Date: 6.72%
Source: finance.yahoo.com
Value Drivers
Risks
• Ongoing strong demand in
emerging markets
• Increasing R&D
expenditure: $8.4 billion in
2011
• Business expansion through
product integration and
acquisition
• Continuing softness in
mature market consumer
segment: PC business is
slowing down
• Low market share in the
smartphone and tablets
segments: dominated by
ARM Holdings
• High volatility in the
industry
Intel Catalysts
2011 2010 2009 2008 2007
Profitability
Operating Margin
Net Profit Margin
32.0%
24.0%
36.0%
26.0%
16.0%
12.0%
24.0%
14.0%
21.0%
18.0%
16.3%
27.1%
16.8%
25.2%
10.4%
10.8%
11.4%
12.9%
10.5%
17.5%
10.4%
16.2%
3.6%
4.6%
4.4%
5.7%
2.7%
3.5%
3.8%
5.0%
Management Effectiveness
Return on Assets
Return on Equity
Solvency
Debt/Asset
Debt/Common Equity
ROE
Intel vs S&P 500
30.0%
30.0%
25.0%
25.0%
20.0%
20.0%
15.0%
15.0%
10.0%
10.0%
5.0%
5.0%
0.0%
Intel vs Sector
0.0%
2007
2008
Intel
Source: Baseline
2009
S&P 500
2010
2011
2007
2008
2009
Intel
Sector
2010
2011
Intel DCF
Terminal FCF
Growth
Terminal Discount Rate
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
9.5%
$34.96
$36.42
$38.10
$40.06
$42.38
$45.16
$48.56
10.0%
$32.61
$33.83
$35.23
$36.85
$38.73
$40.95
$43.62
10.5%
$30.54
$31.57
$32.75
$34.09
$35.64
$37.45
$39.58
11.0%
$28.70
$29.58
$30.58
$31.71
$33.00
$34.48
$36.22
11.5%
$27.06
$27.82
$28.67
$29.62
$30.71
$31.95
$33.37
Intel
Sensitivity Analysis
12.0%
$25.59
$26.24
$26.97
$27.79
$28.71
$29.75
$30.94
12.5%
$24.26
$24.83
$25.46
$26.16
$26.95
$27.83
$28.83
Relative to
Industry
High
Low
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.1
1.1
1.3
1.3
1.4
0.4
0.1
0.7
0.9
0.6
Median Current
0.8
0.8
1.0
1.1
0.9
Absolute
Valuation
High
Low
P/Forward E
P/S
P/B
P/EBITDA
P/CF
45.4
8.3
6.2
23.4
25.5
8.4
1.8
1.8
5.3
6.1
0.9
0.8
1.0
1.0
0.9
Relative to
S&P
High
Low
P/Trailing E
P/Forward E
P/B
P/S
P/CF
2.6
2.9
1.9
5.3
2.2
0.6
0.7
1.0
1.9
0.7
Median Current
18.3
3.5
3.1
9.9
13.2
Target Target /
Multiple Share
10.6
2.6
2.9
5.9
8.0
Intel Valuations
Source: Baseline
12.4
2.8
3.2
7.3
12.6
2.5
11.1
9.4
4.7
1.7
Median Current
1.2
1.2
1.2
2.8
1.1
Target
Price
31.04
31.08
29.95
34.12
22.92
0.8
0.8
1.3
2.0
0.9
Intel - Technical Analysis
• Target Price: $31.05
• Current Price (May 18, 2012): $26.07
• Potential Upside: 19.09%
• HOLD
Metric
DCF
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Target Price
Weight
$31.71
$31.04
$31.08
$29.95
$34.12
$22.92
65%
7%
7%
7%
7%
7%
Intel Price Target
Unit Cost: $21.72
Unrealized Gain: $112,748
Corning Inc.
• Corning traces its origins to a
glass business established in
1851.
Ticker
• GLW was incorporated in 1936 Current Stock Price
52-Week Range
• Today Corning is a global
technology-based corporation Market Capitalization
Shares Outstanding
that operates in five business
Beta
segments:
•
•
•
•
•
Display Technologies
Telecommunications
Environmental Technologies
Specialty Materials
Life Sciences
Dividend Yield
2011 Revenues
2011 Earnings
Industry
• 28,800 employees manufacture
and process products at
approximately 60 plants in more
than 13 countries.
Corning Overview
Source: finance.yahoo.com
2011 GLW 10K
GLW
$12.75
$11.51-$20.29
$19.35 Billion
1.5 Billion
1.4
2.3%
$7,890 Million
$2,805 Million
Electronic Instr. & Controls
Corning Inc.
Stock
Performance
10-Year: 128.49%
5-Year: -50.10%
3-Year: -10.46%
1-Year: -37.22%
Year to Date: -1.77%
Source: finance.yahoo.com
Value Drivers
•
•
•
•
Recognized Brand Name
Momentum- coming off the highest annual
sales in the company’s history last year
Stock repurchase program of up to $1.5
billion
Innovative new products:
•
•
•
Increase in Corning’s dividend from $0.05
to $0.075 per share
Recent acquisitions:
•
•
•
•
•
Gorilla Glass in tablets/mobile
Risks
•
•
•
•
•
•
•
•
•
As a result of intense competition, emerging
new technologies, or over-capacity.
International risks:
•
•
MobileAccess
Mediatech
Surge in Internet bandwidth requiring
massive bandwidth fiber-optic networks
Push for greener environment drives
demand for emissions-control products
Incredibly cheap valuations offering
opportunity to get a strong leading
company at a discount price
In 2011, Corning’s ten largest customers
accounted for 51% of their sales…
Potential demand for products to decline
Pricing pressures in each of their leading
businesses
Earthquake in Japan
If corning were to lose 1 of 3 over-seas
facilities, could produce severe impact
Also currency risks: In 2011, 62% of net sales
were from Asia Pacific, 10% from Europe, only
24% of sales were from North America.
Dependence on ability to purchase a
sufficient amount of materials, precious
metals, parts and equipment.
Risks from equity method investments in
companies like Samsung Corning Precision
Unforeseen additional tax liabilities, or
changes in their effective tax rate
Corning Catalysts
Corning Inc. (GLW)
2011
2010
2009
2008
2007
23.4%
35.6%
21.5%
53.6%
11.8%
37.2%
20.2%
88.4%
21.5%
36.7%
10.5%
13.9%
15.1%
20.4%
9.9%
13.9%
30.5%
45.8%
15.2%
25.8%
8.4%
11.2%
8.7%
11.7%
9.0%
12.4%
7.9%
11.4%
9.9%
15.9%
Profitability
Operating Margin
Net Profit Margin
Management Effectiveness
Return on Assets
Return on Equity
Solvency
Debt/Asset
Debt/Common Equity
Source: Baseline
GLW DCF
Terminal FCF
Growth
Terminal Discount Rate
$ 24.70
0.0%
1.0%
2.0%
2.8%
4.0%
5.0%
6.0%
8.0%
$31.85
$34.61
$38.29
$41.97
$51.17
$64.04
$89.80
9.0%
$27.76
$29.73
$32.27
$34.71
$40.40
$47.51
$59.36
10.0%
$24.51
$25.97
$27.79
$29.48
$33.25
$37.61
$44.16
11.3%
$21.30
$22.33
$23.57
$24.70
$27.10
$29.71
$33.32
12.0%
$19.71
$20.55
$21.57
$22.47
$24.35
$26.34
$28.99
Corning Inc
Sensitivity Analysis
13.0%
$17.89
$18.55
$19.33
$20.01
$21.41
$22.83
$24.67
17.0%
$12.87
$13.15
$13.46
$13.72
$14.23
$14.71
$15.28
Relative to
Industry
High
P/Trailing E
P/Forward E
P/B
P/S
P/CF
3.0
1.2
0.9
2.2
1.4
Low Median Current
0.3
0.6
0.4
0.1
0.6
0.8
0.9
0.7
1.3
0.9
0.8
0.9
0.8
1.0
0.8
Relative to
S&P
High
P/Trailing E
P/Forward E
P/B
P/S
P/CF
6.3
6.6
2.6
5.9
3.9
Low Median Current
0.4
0.6
0.1
0.2
0.1
1.1
1.1
0.9
3.7
1.3
Absolute
Valuation
High
Low
Median
Current
Target
Multiple
Target /
Share
Target Price
P/Forward E
121.1
7.0
15.8
9.3
15.8
1.4
21.66
P/S
8.9
0.2
4.7
2.5
4.7
5.1
23.97
P/B
7.7
0.3
2.3
0.9
2.3
14.2
32.58
P/EBITDA
85.5
4.0
10.9
5.1
10.9
2.5
27.36
P/CF
45.1
1.1
13.4
5.8
13.4
2.2
29.46
Corning Inc
Valuations
Source: Baseline
0.6
0.8
0.4
2.1
0.7
•Based on P/Trailing E, GLW currently trades at a
50% Discount to its Elec. Components & Equip.
Industry peers.
Corning - Technical Analysis
• Target Price: $25.51
• Current Price (May 18, 2012): $12.75
• Potential Upside: 81.88%
• HOLD
Metric
Target Price
Weight
DCF
$24.70
65%
P/Forward E
$21.66
7%
P/S
$23.97
7%
P/B
$32.58
7%
P/EBITDA
$27.36
7%
P/CF
$29.46
7%
Corning Inc
Price Target
Unit Cost: $16.77
Unrealized (Loss): ($93,993)
Oracle Corporation
• World’s largest enterprise
software company
Ticker
• Nearly 108,000
Current Stock Price
employees serving more 52-Week Range
than 380,000 in more Market Capitalization
Shares Outstanding
than 145 countries
Beta
• Products include both Dividend Yield
software and hardware 2011 Revenues
2011 Earnings
systems
Industry
• Acquired Sun and
initiated hardware
systems business in 2010
Oracle Overview
Source: finance.yahoo.com
www.oracle.com
2011 Oracle 10K
ORCL
$25.61
$24.72-$34.30
$127.41 Billion
4.98 Billion
1.28
0.90%
$35.6 Billion
$8.5 Billion
Systems Software
Oracle Stock
Performance
10-Year: 196.61%
5-Year: 36.43%
3-Year: 38.74%
1-Year: -22.59%
Year to Date: 1.47%
Source: finance.yahoo.com
Value Drivers
Risks
• Active Acquisition
• Popular Products
• Distinct Seasonality
• Furious Competition vs.
Pressure to Develop New
Products
• Additional Risk from
International Sales
• Recent Lawsuit with
Google
• Database Software
• Cloud Services
• Oracle Fusion Middleware
• Hardware Systems
Development
• Continued Innovation
Oracle Catalysts
2011
2010 2009 2008 2007
Profitability
Operating Margin
Net Profit Margin
33.8%
24.0%
33.8%
22.9%
35.8%
24.1%
35.0%
24.6%
33.2%
23.7%
11.6%
24.1%
10.0%
22.0%
11.8%
23.2%
11.7%
27.6%
12.4%
26.8%
21.7%
40.0%
23.8%
47.5%
21.7%
40.9%
23.8%
48.8%
22.0%
44.9%
Management Effectiveness
Return on Assets
Return on Equity
Solvency
Debt/Asset
Debt/Common Equity
Year
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
Revenue
% Growth
41,904
46,513
11.0%
49,725
6.9%
52,460
5.5%
55,083
5.0%
57,562
4.5%
59,864
4.0%
61,959
3.5%
63,818
3.0%
65,733
3.0%
67,705
3.0%
Operating Income
Operating Margin
13,218
31.5%
14,770
31.8%
16,041
32.3%
16,630
31.7%
17,516
31.8%
18,362
31.9%
19,157
32.0%
19,765
31.9%
20,294
31.8%
20,903
31.8%
21,530
31.8%
Interest, net
Interest % of Sales
838
2.0%
930
2.0%
995
2.0%
1,049
2.0%
1,102
2.0%
1,151
2.0%
1,197
2.0%
1,239
2.0%
1,276
2.0%
1,315
2.0%
1,354
2.0%
Other expenses
Other expenses % of Sales
218
0.5%
242
0.5%
259
0.5%
262
0.5%
275
0.5%
288
0.5%
239
0.4%
248
0.4%
255
0.4%
263
0.4%
271
0.4%
3,640
25.5%
4,145
26.0%
4,583
26.5%
4,754
26.5%
5,007
26.5%
5,247
26.5%
5,457
26.5%
5,632
26.5%
5,784
26.5%
5,957
26.5%
6,136
26.5%
11,797
10.9%
12,711
7.7%
13,187
3.7%
13,887
5.3%
14,554
4.8%
15,136
4.0%
15,620
3.2%
16,042
2.7%
16,523
3.0%
17,019
3.0%
2,419
5.2%
(876)
-1.9%
651
1.4%
2,635
5.3%
(610)
-1.2%
746
1.5%
2,675
5.1%
(519)
-1.0%
866
1.7%
2,754
5.0%
(496)
-0.9%
991
1.8%
2,763
4.8%
(466)
-0.8%
1,151
2.0%
2,694
4.5%
(431)
-0.7%
1,377
2.3%
2,664
4.3%
(390)
-0.6%
1,673
2.7%
2,553
4.0%
(345)
-0.5%
1,915
3.0%
2,432
3.7%
(355)
-0.5%
2,103
3.2%
2,370
3.5%
(366)
-0.5%
2,370
3.5%
12,496
18.7%
13,713
9.7%
14,198
3.5%
14,879
4.8%
15,451
3.8%
15,830
2.5%
16,091
1.6%
16,272
1.1%
16,503
1.4%
16,732
1.4%
Taxes
Tax Rate
Net Income
% Growth
10,634
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
2,137
5.1%
(1,732)
-4.1%
545
1.3%
Free Cash Flow
% Growth
10,525
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
89,321
84,667
173,988
8.01%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
12.3
16.4
8.6
11.4
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital % of Growth
Oracle DCF
51%
49%
100%
Terminal Value 229,793
Free Cash Yield
11.1
14.7
7.7
10.1
10.3
13.7
7.1
9.3
Terminal P/E
13.5
Terminal EV/EBITDA
9.6
5,128
$
25.61
$
33.93
32.5%
15,922
15,451
3.01
73,535
21.7%
18%
Terminal Discount Rate =
Terminal FCF Growth =
7.28%
10.5%
3.0%
Terminal FCF
Growth
Terminal Discount Rate
$ 33.93
0%
1%
2%
3%
4%
5%
6%
9.0%
$32.73
$35.12
$38.20
$42.31
$48.05
$56.66
$71.00
9.5%
$30.95
$33.03
$35.66
$39.09
$43.76
$50.51
$61.11
10.0%
$29.36
$31.17
$33.43
$36.32
$40.19
$45.59
$53.69
10.5%
$27.92
$29.50
$31.46
$33.93
$37.16
$41.56
$47.91
11.0%
$26.61
$28.00
$29.71
$31.83
$34.56
$38.20
$43.29
Oracle
Sensitivity Analysis
11.5%
$25.41
$26.65
$28.14
$29.98
$32.31
$35.35
$39.49
12.0%
$24.32
$25.42
$26.73
$28.33
$30.33
$32.90
$36.33
Relative to
Industry
High
Low
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.3
1.3
2.5
1.7
1.5
0.8
0.7
0.8
0.5
0.8
Median Current
1.0
1.0
1.2
1.2
1.1
Absolute
Valuation
High
Low
P/Forward E
P/S
P/B
P/EBITDA
P/CF
31.2
7.8
11.5
19.6
27.6
10.6
3.4
2.9
7.5
9.0
Oracle
Valuations
Source: Baseline
1.0
0.9
0.8
1.3
1.0
Relative to
S&P
High
Low
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.7
1.7
4.2
5.5
2.8
0.8
0.8
1.3
2.8
1.0
Median Current
16.0
5.5
6.0
13.9
16.3
11.3
3.9
2.9
7.5
9.8
Target Target /
Multiple Share
15.5
5.0
4.8
11.5
14.2
2.2
7.6
8.0
3.1
2.2
Median Current
1.1
1.0
2.1
4.2
1.5
Target
Price
33.74
38.23
38.40
35.27
31.49
0.9
0.8
1.3
3.1
1.1
Oracle - Technical Analysis
• Target Price: $34.45
• Current Price (May 18, 2012): $25.61
• Potential Upside: 32.5%
• Hold
Metric
DCF
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Oracle
Price Target
Target Price
Weight
$33.93
$33.74
$38.23
$38.40
$35.27
$31.49
65%
7%
7%
7%
7%
7%
Unit Cost: $30.12
Unrealized (Loss): ($5,625)
Apple Inc.
• Founded in 1976 and is
headquartered in Cupertino,
California
• Segment by product
•
•
•
•
•
•
•
•
Mac desktops
Mac portables
iPod
Other music related P&S
Iphone and related P&S
Ipad and related P&S
Peripherals and other hardware
Software, service and other sales
• As of Sep. 24 2011, 245 retail
stores in the US, 112 stores
internationally.
Apple Inc.
Ticker
AAPL
Current Stock Price
$530.38
52-Week Range
$310.50-$644.00
Market Capitalization
$495.94 Billion
Shares Outstanding
935.06 Million
Beta
0.94
Dividend Yield
N/A
2011 Revenues
2011 Earnings
Industry
$108.2 Billion
$25.9 Billion
Computer Hardware
Apple Stock
Performance
10-Year: 5690.17%
5-Year: 366.80%
3-Year: 316.15%
1-Year: 55.75%
Year to Date: 28.97%
Apple Inc.
Value Drivers
Risks
• Apple generated more than $33
billion in free cash flow during
fiscal 2011 and has NO debt
• Apple's retail stores, (No
middle man, provide platform
for exposing the company's
expanding product line)
• Staying power because it has
developed an ecosystem that
connects success in one
generation of devices to
successive consumer purchases
•
Apple Catalysts
•
•
•
•
•
Loss of Steve Jobs (Can Apple
innovate faster and better than
competitors without Steve?)
Any stumble in early product cycle
High price points of its products
could limit growth in emerging
markets
Ambiguity of ultimate side of the
global handset and table market
Revenue growth could slow
dramatically if Apple fails to
penetrate the masses in emerging
markets
More than 40% of Apple's revenue
comes from iPhone line, (Remember
RIMM Blackberry?)
2011 2010 2009 2008 2007
Profitability
Operating Margin
Net Profit Margin
31.2%
23.9%
28.2%
21.5%
27.4%
19.2%
19.3%
14.9%
18.4%
14.6%
22.3%
33.8%
18.6%
29.3%
17.3%
26.0%
12.2%
23.0%
13.8%
24.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Management Effectiveness
Return on Assets
Return on Equity
Solvency
Debt/Asset
Debt/Common Equity
ROE
Apple VS Sector
40.0%
ROE
Apple VS S&P 500
40.0%
35.0%
35.0%
30.0%
30.0%
25.0%
25.0%
Apple
20.0%
Apple
20.0%
S&P 500
Sector
15.0%
15.0%
10.0%
10.0%
5.0%
5.0%
0.0%
0.0%
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Year
2012E
2013E
Revenue
% Growth
161,693
194,689 234,142 250,532 265,564 280,170 295,579 310,950 324,942 339,565 353,996
20.4%
20.3%
7.0%
6.0%
5.5%
5.5%
5.2%
4.5%
4.5%
4.3%
Operating Income
Operating Margin
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
56,026
34.6%
65,695
33.7%
76,291
32.6%
70,149
28.0%
66,391
25.0%
67,241
24.0%
65,027
22.0%
62,190
20.0%
64,988
20.0%
64,517
19.0%
67,259
19.0%
566
0.4%
623
0.3%
702
0.3%
752
0.3%
797
0.3%
841
0.3%
887
0.3%
933
0.3%
975
0.3%
1,019
0.3%
1,062
0.3%
Taxes
Tax Rate
16,978
30.0%
19,896
30.0%
23,098
30.0%
21,270
30.0%
20,156
30.0%
20,424
30.0%
19,774
30.0%
18,937
30.0%
19,789
30.0%
19,661
30.0%
20,496
30.0%
Net Income
% Growth
39,615
46,423
17.2%
53,896
16.1%
49,630
-7.9%
47,031
-5.2%
47,657
1.3%
46,140
-3.2%
44,186
-4.2%
46,174
4.5%
45,875
-0.6%
47,825
4.3%
3,310
1.7%
970
0.5%
8,177
4.2%
3,980
1.7%
528
0.2%
10,068
4.3%
4,760
1.9%
(351)
-0.1%
9,771
3.9%
5,311
2.0%
(319)
-0.1%
10,091
3.8%
5,603
2.0%
(308)
-0.1%
9,806
3.5%
6,207
2.1%
(325)
-0.1%
9,754
3.3%
7,774
2.5%
(323)
-0.1%
9,328
3.0%
9,098
2.8%
(292)
-0.1%
9,748
3.0%
9,508
2.8%
(306)
-0.1%
9,508
2.8%
9,912
2.8%
(301)
-0.1%
9,912
2.8%
42,526
18.3%
48,336
13.7%
44,269
-8.4%
41,933
-5.3%
43,146
2.9%
42,268
-2.0%
42,308
0.1%
45,232
6.9%
45,570
0.7%
47,524
4.3%
Other income and expense
Interest % of Sales
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital % of Growth
2,716
1.7%
83
0.1%
6,468
4.0%
35,946
265,861
292,069
557,930
7.27%
12.5
14.1
8.0
9.1
48%
52%
100%
792,700
6.00%
10.7
12.0
6.8
7.7
9.2
10.4
5.8
6.6
16.6
9.9
932
$ 530.38
$ 598.44
12.8%
25,952
27.84
116,371
0.0%
2%
Apple DCF
Terminal Discount Rate =
Terminal FCF Growth =
0.105
4.3%
Terminal FCF
Growth
Terminal Discount Rate
2.75%
3.25%
3.75%
4.25%
4.75%
5.25%
5.75%
9.0%
$658.33
$690.98
$729.86
$776.92
$835.05
$908.68
$1,004.97
9.5%
$610.84
$637.53
$668.87
$706.17
$751.33
$807.12
$877.78
10.0%
$569.87
$591.96
$617.58
$647.66
$683.47
$726.81
$780.36
10.5%
$534.18
$552.64
$573.85
$598.44
$627.32
$661.69
$703.31
11.0%
$502.79
$518.37
$536.10
$556.46
$580.08
$607.81
$640.81
11.5%
$474.97
$488.22
$503.19
$520.22
$539.77
$562.45
$589.08
Apple Sensitivity Analysis
12.0%
$450.14
$461.50
$474.23
$488.61
$504.96
$523.75
$545.53
Relative to
Industry
High
Low Median Current
Relative to
S&P
High
P/Trailing E
P/Forward E
P/B
P/S
P/CF
6.4
3.8
2.2
4.3
74.1
1.1
0.9
0.3
0.6
1.1
P/Trailing E
P/Forward E
P/B
P/S
P/CF
8.1
4.5
4.3
4.8
92.4
Absolute
Valuation
1.7
1.7
1.2
2.6
2.5
High
P/Forward E 81.6
P/S
7.2
P/B
11.9
P/EBITDA
130.2
P/CF
1139.9
1.2
0.9
1.2
2.1
1.3
Low
10.7
0.9
1.2
9.8
10.8
Median Current
28.5
3.9
5.3
24.6
33.4
12.7
4.2
5.2
11.8
15.3
Low Median Current
1.0
0.8
0.5
0.6
1.2
Target Target /
Multiple Share
15.0
4.0
5.3
13.0
15.0
Apple Valuations
41.8
126.3
102.0
44.9
34.7
2.0
1.8
2.3
3.0
3.1
Target
Price
626.40
505.12
540.60
584.22
520.05
1.2
1.0
2.3
3.3
1.6
Apple - Technical Analysis
• Target Price: $583.33
• Current Price (May 18, 2012): $530.38
• Potential Upside: 9.9%
• Sell
Metric
Target Price
Weight
$598.44
$626.40
$505.12
$540.60
$584.22
$520.05
65%
7%
7%
7%
7%
7%
DCF
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Apple Price
Unit Cost: $250.25
Unrealized Gain: $327,053
Hewlett-Packard Co.
• World’s largest
computer hardware
company
• Nearly 325,000
employees serving over
1 billion customers in
more than 170 countries
• Products ranging from
personal computers up
to enterprise servers
• Recently hired Meg
Whitman as CEO
Ticker
Current Stock Price
HPQ
$21.46
52-Week Range
$21.28-$37.70
Market Capitalization
$42.43 Billion
Shares Outstanding
2.13 Billion
Beta
Dividend Yield
2011 Revenues
2011 Earnings
Industry
1.41
2.20%
$120.9 Billion
$11.2 Billion
Computer Hardware
Hewlett-Packard Overview
Source: HP.com
finance.yahoo.com
Hewlett-Packard
Stock
Performance
10-Year: 15.40%
5-Year: -50.58%
3-Year: -38.34%
1-Year: -44.65%
Year to Date: -17.24%
Source: finance.yahoo.com
Value Drivers
Risks
• CEO Meg Whitman
• New Products
• Broken consumer
confidence
• Windows 8
• Layoff backlash
• Further economic
downturn
• Cloud (U.S. &
Corporate)
• Slim Books (AMD)
• Windows 8
• Tablets
• Focus on R&D
Hewlett-Packard Catalysts
2011 2010 2009 2008 2007
Profitability
Operating Margin
Net Profit Margin
9.0%
6.9%
10.2%
8.1%
9.6%
7.6%
9.1%
6.9%
8.4%
6.1%
6.8%
22.5%
8.2%
25.0%
7.6%
21.4%
7.2%
21.0%
7.1%
16.4%
23.7%
57.9%
17.9%
27.9%
13.8%
6.2%
15.8%
19.5%
9.2%
-8.5%
Management Effectiveness
Return on Assets
Return on Equity
Solvency
Debt/Asset
Debt/Common Equity
Source: Bloomberg
Year
2012E
Revenue
% Growth
120,874
Operating Income
Operating Margin
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
124,802 131,852 138,708 145,505 152,053 158,287 164,143 169,888 175,495 180,760
3.2%
5.6%
5.2%
4.9%
4.5%
4.1%
3.7%
3.5%
3.3%
3.0%
11,192
9.3%
12,423
10.0%
13,289
10.1%
13,177
9.5%
13,095
9.0%
12,924
8.5%
12,663
8.0%
12,311
7.5%
11,892
7.0%
11,407
6.5%
10,846
6.0%
Interest and Other
Interest % of Sales
(665)
-0.6%
(686)
-0.6%
(725)
-0.6%
(763)
-0.6%
(800)
-0.6%
(836)
-0.6%
(871)
-0.6%
(903)
-0.6%
(934)
-0.6%
(965)
-0.6%
(994)
-0.6%
Taxes
Tax Rate
2,190
20.8%
2,441
20.8%
2,613
20.8%
2,582
20.8%
2,557
20.8%
2,514
20.8%
2,453
20.8%
2,373
20.8%
2,279
20.8%
2,172
20.8%
2,049
20.8%
Net Income
% Growth
8,337
9,296
11.5%
9,951
7.0%
9,832
-1.2%
9,738
-1.0%
9,574
-1.7%
9,340
-2.4%
9,035
-3.3%
8,679
-3.9%
8,270
-4.7%
7,802
-5.7%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
3,626
3.0%
1,898
1.6%
3,626
3.0%
3,744
3.0%
(295)
-0.2%
3,744
3.0%
3,956
3.0%
(529)
-0.4%
3,956
3.0%
4,161
3.0%
(1,947)
-1.4%
4,161
3.0%
4,365
3.0%
(1,925)
-1.3%
4,365
3.0%
4,562
3.0%
(1,847)
-1.2%
4,562
3.0%
4,749
3.0%
(1,752)
-1.1%
4,749
3.0%
4,924
3.0%
(1,640)
-1.0%
4,924
3.0%
5,097
3.0%
(1,605)
-0.9%
5,097
3.0%
5,265
3.0%
(1,564)
-0.9%
5,265
3.0%
5,423
3.0%
(1,464)
-0.8%
5,423
3.0%
Free Cash Flow
% Growth
9,905
9,053
-8.6%
9,514
5.1%
8,224
-13.6%
8,149
-0.9%
8,049
-1.2%
7,893
-1.9%
7,681
-2.7%
7,353
-4.3%
6,979
-5.1%
6,594
-5.5%
46,350
24,296
70,646
18.99%
66%
34%
100%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
6.3
8.5
4.5
5.7
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital % of Growth
Terminal Value
Free Cash Yield
5.6
7.6
4.1
5.3
5.2
7.1
3.9
4.9
21.46
$
33.20
54.7%
22,591
8,043
3.78
129,517
17.4%
27%
Hewlett-Packard DCF
Terminal Discount Rate =
Terminal FCF Growth =
8.74%
Terminal P/E
9.7
Terminal EV/EBITDA
5.5
2,128
$
75,459
12.0%
3.0%
Terminal FCF
Growth
Terminal Discount Rate
0%
1%
2%
3%
4%
5%
6%
9%
$41.46
$42.88
$44.67
$47.03
$50.30
$55.17
$63.22
10%
$37.48
$38.45
$39.64
$41.15
$43.14
$45.90
$49.99
11%
$34.21
$34.89
$35.70
$36.70
$37.96
$39.62
$41.92
12%
$31.48
$31.96
$32.52
$33.20
$34.02
$35.07
$36.43
13%
$29.17
$29.51
$29.91
$30.37
$30.92
$31.59
$32.44
Hewlett-Packard
Sensitivity Analysis
14%
$27.18
$27.43
$27.71
$28.03
$28.40
$28.84
$29.37
15%
$25.46
$25.64
$25.83
$26.05
$26.30
$26.59
$26.94
Relative to
Industry
High
Low
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.1
0.9
0.7
0.9
1.2
0.4
0.4
0.2
0.2
0.3
Median Current
0.8
0.7
0.5
0.6
0.8
0.4
0.4
0.3
0.2
0.3
Absolute
Valuation
High
Low
P/Forward E
P/S
P/B
P/EBITDA
P/CF
17.2
1.4
3.6
49.7
16.2
4.9
0.4
1.2
2.9
3.1
Relative to
S&P
High
Low
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.3
1.1
1.4
1.0
1.5
0.4
0.4
0.5
0.3
0.4
0.9
0.8
0.9
0.7
1.0
Target Target /
Multiple Share
Target
Price
Median Current
13.2
0.9
2.2
10.6
10.2
5.9
0.4
1.3
2.9
3.5
Hewlett-Packard
Valuations
Source: Baseline
8.8
0.6
1.7
5.3
6.8
4.0
59.8
19.4
7.7
6.0
Median Current
34.94
35.88
32.01
40.68
41.00
0.4
0.4
0.6
0.3
0.4
Hewlett-Packard - Technical Analysis
• Target Price: $34.41
• Current Price (April 18, 2012): $21.46
• Potential Upside: 54.7%
• BUY
Metric
DCF
Sum of Parts
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Target Price
Weight
$33.20
$36.04
$34.94
$35.88
$32.01
$40.68
$41.00
65%
10%
5%
5%
5%
5%
5%
Hewlett-Packard
Unit Cost: $40.58
Price Target
Unrealized (Loss): ($253,105)
Conclusion
Value Drivers
Risks
• AAPL: $33 billion in free
cash flow
• AAPL: Apple retail stores
• HPQ: CEO Meg
Whitman
• HPQ: Focus on R&D
• AAPL: Worth twice the
4th largest company
• AAPL: 56% of the SIM
portfolio unrealized gains
• HPQ: Broken consumer
confidence
• HPQ: Windows 8
Conclusion