Consumer Staples Stock Presentation
Jamie Falcon
Gregory Gerard
Dia Ganguly
Consumer Staples
Consumer Staples
Sector
S&P 500 Weight
SIM Weight
Consumer Discretionary
Consumer Discretionary
10 66%
10.66%
9 49%
9.49%
Consumer Staples
10.66%
10.45%
Energy
12.99%
10.36%
Financials
14.86%
13.18%
Health Care
Health Care
11 46%
11.46%
9 55%
9.55%
industrials
10.66%
9.29%
Information Technology
18.74%
22.54%
Materials
3.61%
3.14%
t l
telecommunication Services
i ti S i
2 94%
2.94%
3 34%
3.34%
Utilities
3.41%
2.43%
Class voted in increase the weight 150bps
Class voted in increase the weight 150bps
Current Stock Weight
Current Stock Weight
CVS/Caremark Overview
CVS/Caremark Overview
• Largest pharmacy care a gest p a acy ca e
provider in the United States
g
g
• Integrated offerings
• Operates in 44 states, the District of Columbia, and Puerto Rico
• Segments:
– CVS/pharmacy
– Caremark Pharmacy
– MinuteClinic
Performance
2010
2009
Change
Net revenues
$
$96,413.00 $
$98,729.00 ‐2.30%
%
Operating profit
$6,165.00 $6,438.00 ‐4.30%
Net income attributable to CVS Caremark
$3,427.00 $3,696.00 ‐7.30%
Diluted EPS attributable to CVS Caremark
$2.49 $2.55 ‐2.30%
Stock price at year‐end
$34.77 $32.21 7.90%
$47,423.00 $44,841.00 5.80%
Market capitalization at year‐end
What drives sales and margin?
What drives sales and margin?
What Drives Sales
• Extra‐Care
• Aging Medicare population • Premium positioning of brand portfolio
• Disease Management/Care Gap Programs
Margins
• Negotiating power Negotiating power
• CVS Branded Products
• Economies of scale
Positive Outlooks
Positive Outlooks
• Generic drug trend
• Healthcare Reform
– Consumer Directed Care
– PCMH and ACO
a d O
• Medicare D
– Universal American Acquisition
• Recently won several significant contracts
Recently won several significant contracts
– Aetna, Federal Employee Health Benefits Program and California PERS
• High Retention
High Retention
– 96% retention
• Minute Clinic expansion
Negative Outlooks
Negative Outlooks
• Express Scripts/Medco
p
p /
• Rising healthcare costs
• Healthcare Reform
– Regulation on premium
– Uncertainty
• Q2 Revenue is down
Q2 R
i d
– lower prices on contract renewals
• Sales came in at the low end of guidance in Retail Store
Sales came in at the low end of guidance in Retail Store
• PMB/ Aetna – Eroded the margin is 3.1 and profits are down
CVS DCF
CVS Valuations
CVS Valuations
CVS Recommendation
CVS Recommendation
Recommendation: Hold
Recommendation: Hold
Philip Morris International
Philip Morris International
About Philip Morris International
About Philip Morris International
Philip Morris International is the world
Philip
Morris International is the world’ss second second
largest tobacco company with 17% market share. Through its subsidiaries, PM manufactures and sells cigarettes and other tobacco products outside of the United States. PM: What is driving sales and high profit margins?
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Factors Driving Sales:
Factors
Driving Sales:
• Economies of scale (thanks to large market share)
Premium positioning of brand portfolio
• Premium positioning of brand portfolio
• Investment in Emerging Markets – Most
Most recent quarter showed a 26% increase in Asia recent quarter showed a 26% increase in Asia
alone
• Zero exposure to the problematic US market
– Avoids problems it with the declining market, expensive litigation risk, and heavy marketing regulatory risks
PM: Potential Risks
PM: Potential Risks
• Input
Input prices: Tobacco leaf prices to increase
prices: Tobacco leaf prices to increase
• Increase in product liability suits internationally
• Excise taxes slowing volume growth
• Strong US dollar
PM strong positions in fastest growing cigarette markets in the world
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ld
Factors Driving Sales (cont.)
Factors Driving Sales (cont.)
Source: World Health Organization, “Global Tobacco Epidemic, 2011”
PM DCF
PM DCF: 24.6% Upside (as of 8/7/11)
NPV of Cash Flows
68,924
43%
NPV of terminal value
90,282
57%
Projected Equity Value
159,206
100%
F
Free
Cash
C h Flow
Fl
Yield
Yi ld
6 35%
6.35%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
15.4
13.3
11.3
19.2
16.6
14.1
10.3
9.0
7.8
12.6
11.0
9.5
1,842
Current Price
$
69.34
Implied equity value/share
$
86.43
Upside/(Downside) to DCF
24.6%
Debt
16,502
Cash
1,703
Cash/share
0.92
Total Assets
35,050
Debt/Assets
Working Capital % of Growth
1,794.0
47.1%
8%
PM: Asia’s attractive youth demographics and population growth
demographics and population growth spell opportunity
Ethical concerns? Otherwise, RECOMMENDATION
increase weight
increase weight
Company Overview
Company Overview
•
•
“Every Day Low Prices”
Comprised of three main segments
– Wal‐Mart U.S.
– Wal‐Mart International
– Sam’s Club
Entertainment
12%
• Present in 15 different countries
•
•
•
•
Highly integrated
Highly
integrated
Largest Employer in the U.S.
Over +8,500 stores worldwide
Variety of products
Grocery
54%
Home
5%
Hardlines
11%
Apparel
7%
Health and Health
and
Wellness
11%
Recent Events
Recent Events
• Wal‐Mart Sex Discrimination court case
– Ruled in favor of Wal‐Mart but may lead to multiple smaller cases against Wal‐Mart in the future
• MassMart – South Africa
– Recently acquired a controlling stake in South Africa but has been stalled by labor union talks
• New store formats in the U.S.
New store formats in the U.S.
– Wal‐Mart has decided to open small store fronts, sort of an express Wal‐Mart
• Wal‐Mart
Wal Mart announced more features to their check cashing announced more features to their check cashing
services
– Rebuke from banking industry since they are not subjected to the same regulations…yet.
same regulations…yet.
Sales Growth
Sales Growth
2011
2010
2009
2008
U.S.
260,261
259,919
256,970
238,915
International
109,232
97,407
96,141
90,570
49,459
47,806
47,976
44,336
2,897
2,953
3,167
3,202
Net Sales
S
Sam's Club
Membership
Sales Growth
U.S.
0.1%
1.1%
7.6%
5.6%
International
12.1%
1.3%
6.2%
17.4%
Sam's Club
3.5%
-0.4%
8.2%
6.6%
-1.9%
-6.8%
-1.1%
-12.5%
Membership
Sales Growth
Sales Growth
• Important of Segments
p
g
– Wal‐Mart U.S. generates the largest percent of sales
– Wal‐Mart International is the growth generator
Q1 2011
Q1 2010
US
60.6%
62.9%
Sam's Club
12.4%
11.9%
International
27 0%
27.0%
25 3%
25.3%
Comparable store sales
Comparable store sales
•
Performance of stores that have existed for over one year
Performance of stores that have existed for over one year
• Q1 2011
– Sales Growth
• U.S.: 0.6%
• Sam’s Club: 9.4%
– Comparable store sales
p
• U.S.: ‐0.9%
• Sam’s Club: 8.8%
Margins
• Increased in commodity prices will lead to a reduction in yp
margins for WMT
• Cost control mechanisms and their vertically integrated di t ib ti
distribution system will increase margins
t
ill i
i
• Margins stay flat in the short
Margins stay flat in the short‐term
term. ROE
• ROE has generally been above the S&P 500 but is down g
y
sloping as of recent.
Dividends
• Dividends have been growing for the past 15 years
g
g
p
y
(≈ 18% annualized)
• Yield: 2.87%
– CVS: 1.46%; PM: 3.69%
Amount/Share
$
$0.40 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $0.00 Recommendation
• Increase position in Wal
Increase position in Wal‐Mart
Mart
+ 50 bps
Summary
• CVS
– 25bps
• PM
• Wal‐Mart
– +50bps
What Questions Do You Have?