Consumer Discretionary
Best Buy, Comcast, GM, Las Vegas Sands
Nameer Chaudry
Nick Cherry
Kelsey Palmer
Sector Overview
Sector Overview
•
•
•
•
Highly cyclical Highly
cyclical
Currently in upswing, impending downturn?
Median ratios at best
di
i
b
Decided to sell 25bps
Stock Recommendations
Stock Recommendations •
•
•
•
Comcast: Hold
Comcast:
Hold
GM: Hold
Las Vegas Sands: Do not buy
S d
b
Best Buy: Sell 25bps
Comcast: Summary
Comcast: Summary
•
•
•
•
Current Weight: 3.44%
Current
Weight: 3 44%
Expected Return: Recommended Weight: 3.44%
d d
i h 3 %
Recommendation: Hold
CMCSA: Background
CMCSA: Background
• Largest
Largest provider of cable and broadband provider of cable and broadband
services in the US
• 2 segments 2 segments
– Cable communication • Video, internet, phone
Vid i t
t h
– NBC Universal
• Serve 1/5 of American families, in 39 states
S
1/5 f A
i
f ili i 39
CMCSA in Comparison
2006
2007
2008
2009
2010
Class A
Class A
163
106
99
100
134
S&P 500
116
122
77
97
112
Industry
147
111
86
106
136
CMCSA: Catalysts
CMCSA: Catalysts
• Addition of content
Addition of content
– NBC, Universal
– Recently won USA Olympic coverage through 2020
y
y p
g
g
• Diversification
– Theme parks, sports teams, arena
Theme parks, sports teams, arena
• MIT upgrades
– Complete internet platform
Complete internet platform
– Could serve any area!
• Benefits from economies of scale Benefits from economies of scale
CMCSA: Risks
CMCSA: Risks
• Intense price competition
te se p ce co pet t o
• Control of Roberts family (33%)
Slowing subscriber growth
• Slowing subscriber growth
– Changes in technology • Potential for regulation g
–
–
–
–
Privacy/security
FCC
Sponsorship
Indecency/censorship
CMCSA: Valuation
CMCSA: Valuation
Relative to Industry
Relative to Industry
High
Low
Median
Current
P/Trailing E
12
1.2
78
7.8
.99
99
.97
97
P/Forward E
1.1
.92
.99
.98
P/B
.8
.5
.6
.6
P/S
1.6
1.0
1.3
1.0
P/CF
1.1
0.9
1.0
0.9
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
1.2
7.8
.99
.97
P/Forward E
23 3
23.3
08
0.8
20
2.0
11
1.1
P/B
0.8
0.5
0.6
0.7
P/S
3.0
1.1
2.0
1.3
P/CF
2.0
0.4
1.0
0.6
Relative to S&P
CMCSA: Overall Valuation
CMCSA: Overall Valuation
Absolute
Valuation
High
A.
Low
B.
Median
Current
D.
E.
C.
#Your Target
Multiple
F.
*Your Target
E, S, B,
etc/Share
G.
Your Target
Price
((F x G))
H.
P/Forward E
435.4
12.6
32.1
14.4
14.5
1.66
24.07
P/S
4.4
1.2
2.9
1.6
2.5
0.78
1.95
P/B
2.5
0.9
1.6
1.5
1.6
16.11
25.78
P/EBITDA
19.46
2.98
6.66
3.90
4.0
6.19
24.76
P/CF
21 2
21.2
42
4.2
11 6
11.6
60
6.0
62
6.2
8 89
8.89
55 12
55.12
Average = 26.34
Valuatio
n
Price
DCF
29.94
Weight
.5
14.97
Current Price
$
24.17
Implied equity value/share
$
28.14
Upside/(Downside) to
Multiples 26.34
26 34
.5
5
13 17
13.17
28.14
16.42%
General Motors Company: Summary
General Motors Company: Summary
•
•
•
•
Current Weight = 3.45%
Current
Weight = 3 45%
Expected Return = 12.06%
Recommendation Weight = 3.45%
d i
i h 3 %
Recommendation: Hold GM Co. Background
•
•
•
•
•
•
Incorporated in 1908
Headquartered in Detroit, Michigan
GM Corporation enters bankruptcy in June 2009
GM Company “New GM” formed in July 2009
IPO in November 2010
IPO in November 2010
Largest automobile manufacturer in the US
– Second in the world
– Operations in 30 countries • Operates in give segments:
– GMNA
GMNA, GM Europe, GM International Ops, GM South America, GM GM Europe GM International Ops GM South America GM
Financial
General Motors Company Common S
(NYSE: GM )
After Hours: 27.71 0.03 (0.11%) 7:48PM EDT
Last Trade:
27.68
Trade Time:
Jul 29
Change:
0.42 (1.49%)
Prev Close:
28.10
Open:
27.62
Bid:
27.72 x 5000
Ask:
27.88 x 400
1y Target Est:
43.10
Day's Range:
27.31 ‐ 28.10
52wk Range:
27.31 ‐ 39.48
Volume:
12,185,408
Avg Vol (3m):
13,529,000
Market Cap:
41.52B
P/E (ttm):
6.63
EPS (ttm):
4.18
Div & Yield:
Div & Yield:
N/A (N/A)
N/A (N/A)
General Motors Co. Value Drivers
General Motors Co. Value Drivers
• Bankruptcy Filings – Eliminated $Billions in debt from restructuring
– Sold or discontinued Pontiac, Saturn, Hummer, and SAAB
– Sharply reduce dealerships and operating costs • Rising
Rising prosperity in China will drive global economic prosperity in China will drive global economic
demand
– Industry leading market share with several joint ventures in China
• New product launches in 2012‐2013
– eAssist technology
• Supply constraints from Japan – Boosting margins
General Motors Co.
General Motors Co. • Intrinsic Value – A sum of parts Calculation
– $16/Share Cash on hand
Debt
Cash
Cash/share
Total Assets
Debt/Assets
*From Q1 10‐Q
Working Capital % of Growth
106,760
29,593
16.29
134,319
79.5%
25%
• Speculation
Speculation GM will make dividend announcement or GM will make dividend announcement or
repurchase shares
– $9/Share Deferred tax credit as estimated by bank
– $5/Share Value of Chinese joint ventures
General Motors Co. Risks
• Steady erosion of US market share
New Car Registrants
i
Market
k Share %
h
%
2008
18.6
2009
16.3
2010
14.3
• Macroeconomic factors
– Continued high unemployment
– Increase in input costs pressure margins – Decreased consumer confidence General Motors Co. Valuation
General Motors Co. Valuation
Relative to Industry
Relative to Industry
High
Low
Median
Current
P/Trailing E
2.2
1.8
2.0
2.0
P/Forward E
1.4
.94
.99
1.0
P/B
1.4
.94
.99
1.0
P/S
1.0
0.8
0.9
0.9
P/CF
1.7
0.9
0.9
0.9
Relative to S&P 500
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
0.81
0.61
0.63
0.62
P/Forward E
0.72
0.51
0.55
0.52
P/B
1.4
.8
.8
1.2
P/S
0.3
0.3
0.3
0.3
P/CF
06
0.6
04
0.4
04
0.4
04
0.4
General Motors (GM)
Analyst: Nick Cherry
Date: 7/10/2011
Year
2011E
146,375
Revenue
% Grow th
2012E
157,353
7.5%
5,123
Operating Income
Operating Margin
3.5%
Interest Income (Expense) an
Interest % of Sales
% Grow th
505
0 3%
0.3%
3,603
% of Revenue
2.5%
Taxes
Tax Rate
Net Income (Loss) Attributable
4.2%
0 5%
0.5%
6.0%
Less: Net Income attributable
6,687
697
1,524
Equity Income
1,616
6.0%
5,004
3.2%
349
671
6.0%
9.0%
4,792
% Grow th
5,080
6.0%
10,246
% of Sales
Plus/(minus) Changes WC
% of Sales
39,425
39
425
39,048
78,473
12.06%
10.6
16.4
8.3
10 1
10.1
1,817
$
$
(5)
0 0%
0.0%
1,713
6.0%
6,070
3.6%
1 380
1,380
12.0%
5,368
5.7%
11,742
(499)
0.1%
4,721
3.0%
6,406
4.6%
Shares Outstanding
5.0%
167
6,125
Current P/E
Projected P/E
Current EV/EBITDA
P j t d EV/EBITDA
Projected
8,387
498
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
6.6%
7.0%
2.9%
Free Cash Flow
167,738
7.0%
0.3%
Capex % of sales
11,015
2013E
7.0%
4,245
Subtract Cap Ex
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Terminal Discount Rate =
Terminal FCF Growth =
27.95
43.19
54.5%
-0.3%
5,451
3.3%
6,556
2.4%
50%
50%
100%
2014E
178,138
6.2%
5,166
2.9%
2015E
188,470
5.8%
5,466
2.9%
11.0%
4.0%
2016E
198,459
5.3%
5,954
3.0%
2017E
207,786
4.7%
7,273
3.5%
2018E
216,305
4.1%
7,571
3.5%
2019E
224,958
4.0%
7,874
3.5%
2020E
233,956
4.0%
8,188
3.5%
4.0%
8,516
3.5%
178
188
198
208
216
225
234
243
0 1%
0.1%
0 1%
0.1%
0 1%
0.1%
0 1%
0.1%
0 1%
0.1%
0 1%
0.1%
0 1%
0.1%
1,815
6.0%
1,069
0.6%
802
15.0%
5,289
-1.5%
10,688
6.0%
0
1.6%
6,057
3.4%
6,239
-4.8%
1,924
6.0%
1,131
0.6%
1 018
1,018
18.0%
5,430
2.7%
10,366
5.5%
2 733
2,733
1.5%
6,596
3.5%
6,764
8.4%
2,040
6.0%
1,191
0.6%
1 292
1,292
21.0%
5,709
5.1%
9,923
5.0%
2 630
2,630
1.3%
7,145
3.6%
6,819
0.8%
2,162
6.0%
1,247
0.6%
2 468
2,468
33.0%
5,927
3.8%
9,350
4.5%
2 441
2,441
1.2%
7,480
3.6%
6,812
-0.1%
2,292
6.0%
1,298
0.6%
2 725
2,725
35.0%
6,056
2.2%
8,652
4.0%
2 217
2,217
1.0%
8,003
3.7%
6,644
-2.5%
2,429
6.0%
1,350
0.6%
2 834
2,834
35.0%
6,344
4.8%
8,773
3.9%
2 250
2,250
1.0%
8,323
3.7%
6,898
3.8%
2,575
6.0%
1,404
0.6%
2 948
2,948
35.0%
6,646
4.8%
8,890
3.8%
2 340
2,340
1.0%
8,656
3.7%
7,174
4.0%
Terminal Value
9.5
14.6
6.4
77
7.7
243,314
0 1%
0.1%
Free Cash Yield
10.0
15.4
7.2
88
8.8
2021E
2,730
6.0%
1,460
0.6%
3 066
3,066
35.0%
6,963
4.8%
9,003
3.7%
2 433
2,433
1.0%
9,003
3.7%
7,463
4.0%
110,874
6.73%
Terminal P/E
15.9
Terminal EV/EBITDA
10.7
General Motors Co. Overall Valuation
General Motors Co. Overall Valuation
Absolute
Valuation
High
A.
Low
B.
Median
C.
Current
D.
E.
#Your
Target
Multiple
F.
*Your
Target E, S,
B, etc/Share
G.
Your Target
Price
(F x G)
H.
P/Forward E
10.1
7.1
7.9
7.1
15
3.09
46.35
P/S
.4
.3
.4
.3
.4
.34
.136
P/B
3.3
1.8
2.0
2.7
3.0
11.29
33.87
P/EBITDA
3.72
3.06
3.31
3.39
4.0
10.0
40
P/CF
5.4
3.9
4.2
3.9
4.2
7.6
31.92
Average = $30.67
Current Price
$
Implied equity value/share $
Upside/(Downside)
Final Valuation
Price
Weight
Multiples
30.46
0.25
7.62
DCF
43.19
0.75
32.39
$40 01
$40.01
27.95
40.01
43.1%
Las Vegas Sands: Summary
Las Vegas Sands: Summary
•
•
•
•
Current Weight: none
Current
Weight: none
Expected Return: 16%
Recommended Weight: none
d d
i h
Recommendation: Do not buy
LVS: Background
LVS: Background
• Incorporated in 2004
• Integrated Resorts
– Gaming, hotel, restaurant, entertainment, retail
• Las Vegas
Las Vegas
– The Venetian, the Palazzo, Sands Expo Center
• Bethlehem, PA
– Sands Bethlehem
Sands Bethlehem
• Macau
– Sands Macau, Venetian Macau, Four Seasons Macau
– Cotai Strip properties
• Singapore
– Marina Bay Sands
LVS in Comparison
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
$100.00
$226.70
$261.08
$15.02
$37.85
$116.42
Industry $100.00
$145.71
$167.28
$44.99
$70.06
$121.28
S&P
$115.80
$122.16
$76.96
$97.33
$111.99
LVS
$100.00
LVS: Catalysts
LVS: Catalysts
• Huge gambling growth in g g
gg
Asia
• Structure of industry in Asia
• Japan?
• Diversified target markets
Diversified target markets
• Macau infrastructure improvements
p
• Early strength in Singapore
LVS: Risks
LVS: Risks
•
•
•
•
•
•
Chinese regulatory environment Chinese
regulatory environment
Sites 7 and 8
Leverage and liquidity
d li idi
The future of Las Vegas
Economic factors
Labor Labor
LVS: Valuation
LVS: Valuation
Relative to Industry
Relative to Industry
High
Low
Median
Current
P/Trailing E
7.7
.95
2.6
.95
P/Forward E
10.4
.81
1.9
.81
P/B
6.0
.2
2.4
.9
P/S
8.9
.3
4.1
1.5
P/CF
5.7
.4
2.6
1.0
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
14.8
1.1
4.0
2.4
P/Forward E
21.4
1.6
3.1
1.7
P/B
7.5
.3
3.1
2.1
P/S
14 1
14.1
.33
64
6.4
32
3.2
P/CF
7.0
.3
3.5
1.9
Relative to S&P
LVS: Overall Valuation
LVS: Overall Valuation
Absolute
Valuation
High
A.
Low
B.
Median
Current
D.
E.
C.
#Your Target
Multiple
p
F.
*Your Target
E, S, B,
etc/Share
G.
Your Target
Price
(F x G)
H.
P/Forward E
291.1
22.5
45.8
23.3
26
1.79
46.54
P/S
22 5
22.5
.22
9
43
4.3
7
10 81
10.81
75 67
75.67
P/B
22.8
.4
9.0
4.9
8
9.18
73.47
P/EBITDA
67.63
1.61
26.91
15.52
21
3.7948
79.69
P/CF
77.0
2.0
36.4
18.6
32
1.019
32.61
Average: $61.60
Final Final
Valuation
Price
Weight
Multiples
$61.60
.25
$15.4
DCF
$52 54
$52.54
.75
75
$39 41
$39.41
$54.81
Current price: $47.18
Upside: 16%
Best Buy Summary
Best Buy Summary
•
•
•
•
Current Weight: Current
Weight:
Expected Return:
Recommended Weight:
d d
i h
Recommendation: Sell
Best Buy Background
Best Buy Background
#45 in Fortune 500
5
o u e 500
Headquarters in Richfield, MN.
1400 Stores in US and 2600 in Europe and Asia
p
Company of the Year" by Forbes magazine in 2004
"Specialty Retailer of the Decade" by Discount Store News in 2001
• Largest revenue from Consumer Electronics, Mobile Phones and Accessories and Technical Support via “Geek Squad”
•
•
•
•
•
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
$100.00
$226.70
$261.08
$15.02
$37.85
$116.42
Industry $100.00
$145.71
$167.28
$44.99
$70.06
$121.28
S&P
$115.80
$122.16
$76.96
$97.33
$111.99
BBY
$100.00
BBY Catalysts
BBY Catalysts
• Geographic Diversification‐ Strong presence in Europe and Asia may serve to impact of US economy Volatility
• Sales Medium Diversification‐ Increased amount of web traffic sales through website increases margin
sales through website increases margin • Product and Service Diversification‐ Expanded product lines including Magnolia Home Theater, and services “GeekSquad” tech support, Best Buy mobile offering phones, accessories, and plans t B tB
bil ff i
h
i
d l
from major carriers.
BBY Risks
BBY Risks
• Tied strongly to Macroeconomic factors –
gy
unemployment, p y
,
discretionary income levels, inflation, GDP growth
• Dependence upon credit availability and favorable interest rates to drive sales promotions
t t di
l
ti
• Fluctuation in Dollar value may lead to unfavorable prices for p
products and inputs
p
• Emergence of other online electronics retailers i.e. Amazon, Ebay, and company websites offering direct sales may challenge both online and in store sales
h ll
b h li
di
l
Analyst: Nameer Chaudry
Date: 6/20/2011
Year
2011E
49,769
Revenue
% Grow th
Terminal Discount Rate =
Terminal FCF Growth =
2012E
49,023
-2.5%
Operating Income
2,026
Operating Margin
4.1%
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
Plus/(minus) Changes WC
% of Sales
-2.5%
2,261
4.7%
48,753
2.0%
2,243
4.6%
2015E
49,728
2.0%
2,387
4.8%
2016E
50,723
2.0%
2,435
4.8%
2017E
51,737
2.0%
2,483
4.8%
2018E
52,772
2.0%
2,533
4.8%
2019E
53,827
2.0%
2,638
4.9%
2020E
54,904
2.0%
2,745
5.0%
(87)
(89)
(91)
(92)
(94)
(96)
(98)
(100)
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
726
739
812
787
839
856
873
890
928
966
36.5%
36.5%
36.5%
36.5%
36.5%
36.5%
36.5%
36.5%
36.5%
36.5%
1,201
1,327
1,369
1,459
1,488
1,518
1,549
1,614
1,681
1,750
3.2%
6.6%
2.0%
2.0%
2.0%
4.2%
4.2%
4.1%
871
833
854
829
845
862
880
897
915
933
952
1.8%
1.7%
1.8%
1.7%
1.7%
1.7%
1.7%
1.7%
1.7%
1.7%
1.7%
564
42
(69)
(143)
(146)
(149)
(152)
(155)
(158)
(161)
(165)
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
678
634
696
761
776
792
807
824
Capex % of sales
1.3%
1.3%
1.4%
1.3%
1.4%
1.5%
1.5%
1.5%
1.5%
1.5%
1,915
% Grow th
Debt
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital % of Growth
36.5%
10.5%
-0.1%
1,416
-26.0%
8,629
6,148
14,777
13.93%
11.7
12.5
4.7
5.1
417
$
$
1 006
1,006
1.9%
0.1%
Current Price
Implied equity value/share
Upside/(Downside) to DCF
5.1%
(85)
637
Shares Outstanding
2,856
-0.2%
1.1%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
2.0%
(83)
622
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
56,002
-0.2%
Subtract Cap Ex
Free Cash Flow
2021E
(85)
1,178
% of Sales
4.2%
47,797
2014E
-0.2%
% Grow th
Add Depreciation/Amort
2,059
2013E
11.0%
2.5%
33.00
35.48
7 5%
7.5%
2,411
2,484
5.96
25,733
9.4%
15%
1,424
0.5%
58%
42%
100%
1,416
-0.6%
1,462
3.3%
1,445
-1.1%
1,474
2.0%
1,504
2.0%
1,568
4.3%
1,634
4.2%
Terminal Value
Free Cash Yield
11.4
12.3
4.7
5.1
10.4
11.1
4.4
4.7
-0.3%
1,121
1.5%
1,448
-11.4%
17,457
8.29%
Terminal P/E
10.0
Terminal EV/EBITDA
4.6
BBY Valuation
BBY Valuation
Stock Valuation
Relative to
I d t
Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Relative
R
l ti to
t S&P
500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Low
Median
Current
1.4
1.4
1.8
15
1.5
1.6
0.5
0.27
0.9
08
0.8
0.8
0.99
0.99
1.2
11
1.1
1.1
1.0
0.99
1.1
10
1.0
1.0
Hi h
High
L
Low
M di
Median
C
Current
t
1.6
1.5
25
2.5
0.7
2.1
0.54
0.58
07
0.7
0.2
0.5
1.0
1.0
15
1.5
0.4
1.2
0.61
0.60
07
0.7
0.2
0.5
BBY Valuation
BBY Valuation
Absolute
Valuation
High
Low
Median
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
30.1
11
1.1
8.5
18.81
27.8
C.
8.2
02
0.2
1.6
3.22
4.6
D.
15.7
06
0.6
4.0
8.78
12.6
Current
#Your
Target
M lti l
Multiple
E.
8.2
02
0.2
1.6
3.64
5.0
F.
10
03
0.3
2
5
10
*Your
Target
E S
E,
S, B
B,
etc/Share
G.
2.89
121 91
121.91
18.41
4.96
4.54
Your
Target
P i
Price
(F x G)
H.
28.90
36 57
36.57
36.82
24.80
45.40
Average: $34.49
$
Target Price Multiples and DCF = 34.99 Upside: 17%
Conclusion
• ComCast
C C t and GM –
d GM Hold
H ld
• LVS –
LVS not worth the gamble
t
th th
bl
• BBY = Worst Buy
BBY W t B