Information Technology
-Stock Presentation-
The Ohio State University
Fisher College of Business
Winter 2012
BUSFIN 724/824
Philip Dermody
Mengyao Kong
Chuanyue Lou
Trevor Nikels
Jiayuan Zhang
SIM Portfolio
•
Monthly Holding Report January 2012
•
SIM Weight:
•
Information Technology: + 1.63%
Stocks
Corning, Inc. (GLW)
• Five Major Divisions:
o Display Technologies
o Environmental Technologies
o Telecommunications
o Life Sciences
o Specialty Materials
FYE 2011
Revenue: $7,890MM
NOI: $1,694MM
NI: $2,805MM
2011 FYE Divisional Revenue
Percentage
14%
7%
0%
13%
26%
Display Technologies
Telecommunications
Environmental Technologies
Specialty Materials
Life Sciences
Other Unallocated
40%
Corning, Inc. (GLW)
Value Drivers:
• 2011: Strongest annual sales performance in Corning’s 161 year history
• Tremendous growth in Specialty Materials driven by “Gorilla Glass”
• 86% increase YoY driven by smartphone, tablet PC, and Laptop growth
• Long term supplier agreement with Samsung
• Gross Margin: 45.2% & Operating Margin: 21.47%
Challenges / Risks:
• Display Technologies segment is not expected to grow
• Demand for LCD glass has stagnated
• Anticipated significant glass price declines
• Transition of core product from LCD glass
• Increased competition in Specialty Materials
•
Competitor: Asahi Glass – “Dragontail”
Corning, Inc. (GLW)
Ten Year Timeline: Corning vs. S&P 500:
Corning, Inc. (GLW)
Corning Return on Equity (Absolute):
Corning, Inc. (GLW)
Corning Return on Equity
vs. S&P 500:
Corning Return on Equity
vs. Sector:
Corning, Inc. (GLW)
Multiple Valuation
Corning, Inc. (GLW)
DCF Valuation
Corning, Inc. (GLW)
Target Price:
Final Price Target: (.5 * $19.40) + (.5 * $17.82) =
$18.61/ share
Management Opinion:
•
“In our opinion, the company’s current stock price represents a significant
discount to the real value of Corning’s businesses. We understand the shortterm concerns relative to the recent macro events, such as a slowing worldwide
economy, and specific concerns about the display supply chain’s recent shortterm correction. The board’s decision to repurchase shares reflects our belief
that the long-term value of our businesses is substantially greater than our
current share price.”
-Wendell Weeks (Corning chairmen, CEO, and President)
Corning, Inc. (GLW)
Further Analysis:
• Corning appears to be underpriced relative to
financial projections.
• Corning recently completed a board authorized
stock repurchase program for purchasing up to
$1.5 billion of the company’s common stock
• Further reduction in diluted share count expected
• Value purchase at current price?
Corning, Inc. (GLW)
Recommendation:
• Current SIM Weight: 2.96%
• Investment Decision: BUY (+75 bps)
• Current Market Price (2/27/2012): $13.52 / share
• Current Upside to DCF: 28.8%
Intel Corporation (INTC)
• Segmentations:
o
o
o
o
o
o
o
o
o
o
o
PC Client Group
Data Center Group,
Intel Mobile Communications,
Intelligent Systems Group,
Netbook and Tablet Group,
Digital Home Group,
Ultra-Mobility Group,
McAfee,
Wind River Software Group,
Software and Services Group,
Non-Volatile Memory Solutions Group
FY 2010 Revenue by Segments
1,784 , 4%
1,501 , 4%
47 , 0%
PC Client Group
Data Center Group
8,693 , 20%
31,598 , 72%
Other Intel Architecture
Operating Segments
All Other Segments
Corporate
FYE 2010
Revenue: $43,623 MM
NI: $11,464 MM
Intel Corporation (INTC)
• Value Drivers:
o During 2010, Sales Revenue grew for 20.72%, profit grew for 172.95% from 2009.
• Significantly higher notebook unit sales;
• higher notebook average selling prices
• higher desktop unit sales
o On February 28, 2011, Intel completed the acquisition of McAfee for $6.7 billion
• Largest acquisition in history of Intel
• objective being to accelerate and enhance the combination of
hardware and software security solutions, improving the overall security of
platforms
• Challenges/Risks
o In the second half of 2011, a flood in Thailand caused shortage in supply of
hard disk drivers
• Intel had cut the revenue prediction for $1 million for this event, but it is still
higher than the revenue for 4th quarter previous years
• Influence will last until the first quarter of 2012, but will diminish afterward
Intel Corporation (INTC)
• Five Year Timeline: Intel vs. SP500
Intel Corporation (INTC)
Intel Corporation (INTC)
• Intel 5 year Return on Equity
Intel Corporation (INTC)
Intel Return on Equity vs. S&P 500:
Intel Corporation (INTC)
• Multiple Valuation
Intel Corporation (INTC)
Intel
Terminal
Discount Rate =
Analyst: Jiayuan Zhang
Date: 01/19/2012
11.0%
Terminal FCF
Growth =
4.0%
Year
2011E
2012E
2013E
2014E
20115E
2016E
2017E
2018E
2019E
2020E
2021E
Revenue
53,516
55,867
58,894
61,839
64,807
67,788
70,839
73,956
77,136
80,299
83,511
4.4%
5.4%
5.0%
4.8%
4.6%
4.5%
4.4%
4.3%
4.1%
4.0%
17,476
19,925
21,599
22,880
23,331
25,082
25,502
27,364
27,769
29,710
30,064
32.7%
35.7%
36.7%
37.0%
36.0%
37.0%
36.0%
37.0%
36.0%
37.0%
36.0%
459
573
609
557
583
610
638
666
694
723
752
0.9%
1.0%
1.0%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
5,201
6,149
6,884
7,144
7,507
8,320
8,703
9,611
10,018
11,015
11,432
29.0%
30.0%
31.0%
32.0%
33.0%
34.0%
35.0%
36.0%
37.0%
38.0%
39.0%
12,734
14,348
15,323
15,120
15,181
16,091
16,102
17,027
16,997
17,912
17,820
12.7%
6.8%
-1.3%
0.4%
6.0%
0.1%
5.7%
-0.2%
5.4%
-0.5%
5,032
5,251
5,536
5,813
6,092
6,372
6,659
6,952
7,251
7,548
7,850
9.4%
9.4%
9.4%
9.4%
9.4%
9.4%
9.4%
9.4%
9.4%
9.4%
9.4%
% Growth
Operating Income
Operating Margin
Equity Investment and Interest
% of Sales
Taxes
Tax Rate
Net Income
% Growth
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
334
500
0
309
324
339
354
370
386
401
0.6%
0.9%
0.0%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
5,500
5,700
5,889
6,184
6,481
6,779
7,084
7,396
7,714
8,030
8,351
10.3%
10.2%
10.0%
10.0%
10.0%
10.0%
10.0%
10.0%
10.0%
10.0%
10.0%
12,599.948035
14,400
14,970
15,058
15,116
16,023
16,031
16,953
16,920
17,832
17,737
14.3%
4.0%
0.6%
0.4%
6.0%
0.0%
5.7%
-0.2%
5.4%
-0.5%
Terminal Value
263,520
Free Cash Yield
6.73%
Terminal P/E
14.8
Terminal
EV/EBITDA
7.0
% 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
418
92,896
50%
92,808
185,704
50%
100%
8.70%
11.4
14.6
6.5
8.4
5,696
$25.43
$32.60
28.2%
7,331
5,065
0.89
10.1
12.9
5.8
7.5
9.5
12.1
5.4
6.9
Intel Corporation (INTC)
Target Price:
Final Price Target: (32.47+32.19+32.76+32.60) =
$32.5/ share
Intel Corporation (INTC)
Further Analysis:
o Intel appears to be underpriced
o Stock price has been raising steadily
o Intel has already been the major performer of the industry
(more than 80% of market share)
o Recently Intel seems aggressive with the acquisition and
the research release
Intel Corporation (INTC)
Recommendation:
• Current SIM Weight: 3.37%
• Investment Decision: Hold
• Current Market Price (2/27/2012): $26.89 / share
• Current Upside to DCF: 19.66%
Google, Inc. (GOOG)
• Four Business Divisions:
o Search
o Advertising
o Operating systems
& platforms
o Enterprise
2011 FYE Divisional Revenue
Percentage
4%
Advertising
Others
96%
FYE 2011
Revenue: $37,905MM
NOI: $11,742MM
NI: $9,737MM
Google
website
28%
72%
Google
Network
Members'
websites
Google, Inc. (GOOG)
• Value Drivers:
o Research & Development:
• Enhance existing products and services
• Develop new products and services, launch innovative products early and
often, then iterate rapidly to make those products even better.
• Improve users online searching experience.
o International expansion:
• Provide products and services in more the 50 countries, regions, and
territories
• Generated 54% of total revenue outside of the U.S.
o Marketing:
• Build a trusted, highly recognized brand
• Promote Google’s brand image and differentiate it from competitors
o Advertising transactions:
• Shift from offline to online as the digital economy evolves.
o Human Capital:
• Recruit the best engineers to produce the best products
Google, Inc. (GOOG)
• Challenges/Risks
o Rapid evolving and Intense competition
• Change technology
• Shift user needs
• Frequent introductions of new products and services
o Simple revenue source
• Advertising revenue covers 96% of total revenue, other revenue
derives from it advertising business
• Advertisers can terminate contracts anytime.
• Expenditure by advertiser tend to be cyclical.
o Privacy concerns
• Damage reputation and deter current and potential users from using
Google’s products and services
• New privacy policy raises concerns
o Merger and Acquisition
• Acquisition of Motorola Mobility in 2011
Google, Inc. (GOOG)
Google, Inc. (GOOG)
Google, Inc. (GOOG)
Google Return on Equity vs. Sector:
Google Return on Equity vs. S&P 500:
Google, Inc. (GOOG)
Google, Inc. (GOOG)
Google, Inc. (GOOG)
Target Price:
Final Price Target: (.5 * $753.11) + (.5 * $762.09) =
$757.60/ share
Google, Inc. (GOOG)
Further Analysis:
• Google appears to be underpriced relative to
financial projections.
• Google acquired Motorola Mobility at $40/share,
current Motorola stock price: $39.73.
• Positive signal?
• Profitability concerns from investors, negative
viewpoint.
• Economic recovery, more online advertisers?
Google, Inc. (GOOG)
• Recommendation:
• Current SIM Weight: 3.49%
• Investment Decision: HOLD
• Current Market Price (2/27/2012): $609.31 / share
• Current Upside to DCF: 25.0%
Apple, Inc. (AAPL)
Q1 2012 Divisional Revenue Percentage
Mac Desktops
2% 2%
4%
20%
Mac Portables
10%
5%
iPod
4%
Other Music Related Products and
Services
iPhone and Related Products and
Services
53%
iPad and Related Products and
Services
Peripherals and Other Hardware
Total Revenue: 46.3 B
NI: $13.87/share
Software, Service and Other Sales
Apple, Inc. (AAPL)
Value Drivers:
• 2011: Strongest annual sales performance due to iPhone 4s & iPad 2
• Tremendous growth in Global market
• 128% increase YoY driven by iPhone, 111% increase YoY driven by iPad
• China is the second market besides America & sales still increase
Challenges / Risks:
• Death of Steve Jobs
• Tim Cook leadership & Innovation
• Increased competition
•
Competitor: Samsung, RIM,
Google etc.
• law suit from the envious
•
10 billion cash on hand
Apple, Inc. (AAPL)
Apple(AAPL)
Apple(AAPL)
Apple (AAPL)
Apple (AAPL)
• Further Analysis:
o The second quarter report include Chinese Market
o iPad 3 will launch soon
o Potential risk
• iTV success impact the future of Apple
• Cloud based computing
• Pending Litigation: iPad, Copyright
o Target Price: $564.39
Apple (AAPL)
• Recommendation:
• Current SIM Weight: 4.85%
• Investment Decision: HOLD until second quarter
• Current Market Price (2/27/2012): $525.76 / share
MasterCard (MA)
• One reporting segment: Payment
Solutions
“All of the Company’s activities are interrelated,
and each activity is dependent upon and
supportive of the other.”
FYE 2011
Revenue: $6,714MM
NOI: $2,713MM
NI: $1,904MM
MasterCard (MA)
Value Drivers:
•
Fast growth in Electronic, Cashless Payment Solution
• Market for transaction is growing at a rapid pace (emerging markets)
• Mobile Payments on the Rise
• Projections show worldwide mobile payment users at 190 million in 2012
and 204 million in 2013
Challenge / Risk:
• Overall Health of Economy
“Economic indicators across the world remain mixed, with the
uncertainties in Europe and the United States weighing on sentiment and
dominating headlines. Nonetheless, we continue to focus on displacing
cash and winning share across markets”
MasterCard (MA)
Ten Year Timeline: MA vs. S&P 500:
MasterCard (MA)
MA Return on Equity (Absolute):
MasterCard (MA)
MA Return on Equity vs.
S&P 500:
MA Return on Equity vs.
Sector:
MasterCard (MA)
Multiple Valuation
Relative to
Industry
High
Low
Median
Current
P/Trailing E
2.5
1.0
1.4
1.2
P/Forward E
2.1
0.8
1.2
1.1
P/B
6.0
1.3
2.7
4.5
P/S
7.0
0.9
3.2
2.8
P/CF
4.6
1.3
1.8
1.4
High
Low
Median
Current
Relative to
S&P500
P/Trailing E
2.7
1.1
1.5
1.7
P/Forward E
2.2
1.0
1.3
1.4
P/B
7.5
1.4
3.4
4.4
P/S
7.3
1.0
4.9
6.3
P/CF
4.4
1.5
2.1
2.2
Absolute
Valuaton
High
Low
Median
Current
YourTtarget
Multiple
A.
B.
C.
D.
E.
F.
Your Target
E,S,B,
etc/Share
Your Target
Price
G.
H.
P/Trailing E
46.0
15.0
20.5
22.2
20.5
16.5
337.4
P/Forward E
34.5
13.5
17.8
18.9
17.8
18.9
336.4
P/B
13.4
3.8
8.0
9.7
8.0
9.7
77.6
P/S
10.1
1.5
5.7
7.9
5.7
7.9
44.8
P/CF
48.1
13.7
19.6
20.5
19.6
17.6
345.0
MasterCard (MA)
DCF Valuation
Mastercoard (MA)
Analyst: Trevor Nikles
Date: 02.27.2012
Terminal Discount Rate =
Terminal FCF Growth =
Year
2010
Revenue
5,539
% Grow th
2011E
2012E
2013E
6,712
7,551
9,061
21.2%
Operating Income
2,752
Operating Margin
49.7%
Interest and Other
Interest % of Sales
Taxes
% of Sales
% of Sales
4,848
5,523
6,075
9.0%
6,622
2018E
14,438
8.0%
7,152
7.0%
7,652
2019E
15,305
6.0%
8,112
53.0%
53.0%
53.0%
53.0%
53.0%
53.0%
53.0%
2020E
16,070
5.0%
8,517
53.0%
121
135
149
162
175
188
199
209
0.4%
1.1%
1.2%
1.4%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1.3%
1,862
Plus/(minus) Changes WC
52.3%
10.0%
2017E
13,494
91
% Grow th
Add Depreciation/Amort
4,032
15.0%
2016E
12,494
74
32.8%
Net Income
53.4%
20.0%
2015E
11,463
20
910
Tax Rate
3,581
12.5%
2014E
10,421
11.0%
5.0%
1,170
32.7%
2,486
1,319
32.7%
2,804
1,590
32.8%
3,379
1,767
32.8%
3,891
1,944
32.8%
4,280
2,119
32.8%
4,666
2,288
2,448
32.8%
5,039
32.8%
5,392
2,595
32.8%
5,715
2,725
32.8%
6,001
33.5%
12.8%
20.5%
15.2%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
208
235
249
281
302
309
312
310
303
291
273
1.7%
3.8%
3.5%
3.3%
3.1%
2.9%
2.7%
2.5%
2.3%
2.1%
1.9%
(132)
(98)
(60)
(107)
125
138
137
148
144
153
161
-2.4%
-1.5%
-0.8%
-1.2%
1.2%
1.2%
1.1%
1.1%
1.0%
1.0%
1.0%
Subtract Cap Ex
61
74
91
118
135
172
187
229
245
260
273
Capex % of sales
1.1%
1.1%
1.2%
1.3%
1.3%
1.5%
1.5%
1.7%
1.7%
1.7%
1.7%
Free Cash Flow
1,877
% Grow th
35.8%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
24,698
8,698
33,397
4.99%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
27.4
17.9
17.2
11.3
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2,548
121
$
$
421.40
275.55
-34.6%
2,903
13.9%
74%
26%
100%
3,435
18.3%
4,183
21.8%
4,556
8.9%
4,928
8.2%
5,268
5,594
6.9%
6.2%
5,899
5.5%
Terminal Value
Free Cash Yield
20.5
13.4
13.4
8.7
18.2
11.9
11.9
7.8
6,162
4.5%
107,828
5.71%
Terminal P/E
18.0
Terminal EV/EBITDA
12.3
MasterCard (MA)
Further Analysis:
• MA current price is at all-time high at $421.40
(unit cost in portfolio $360.57)
• Target Price = $306.05/share
• MasterCard appears to be overpriced relative to
financial projections
• What is driving current activity?
• Good time to sell?
MasterCard (MA)
Recommendation:
• Current SIM Weight: 3.77%
• Investment Decision: Sell (75 bps)
• Diversify within sector? Potentially (HP)?
• Current Market Price (2/27/2012): $421.40 / share
• Current Downside to DCF: (34.6%)
Information Technology Stocks
Recommendation