Information Technology
gy
Stock Presentation
By:
Lauren Irwin
David Klink
Zach Kramer
Steve Meecham
Jie Meng
Agenda
 IT Sector Overview
 Stock Discussion
 Apple Inc
pp
 Corning Inc
 Google  Hewlett Packard Co
 Intel Corp
 MasterCard
 Recommendations
SIM Portfolio
IT Sector Recommendation
S&P 500 Weight 5
g
SIM Weight g
Weight
g
Current
18.74%
22.54%
3.79%
Recommendation
d
18.74%
23.25%
4.50%
Increase IT weight by 71 BPS
Information Technology Stocks Recommendation
Company
Current SIM Weight
Decision
Apple Inc
5.51%
Sell 125 BPS
Corning Inc
3.22%
3 22%
HOLD
Google
3.12%
Buy 40 BPS
Hewlett Packard Co
3.59%
HOLD
p
Intel C
Corp
33.40%
4 %
O
HOLD
MasterCard
3.71%
HOLD
Total
22.55%
Decrease overall IT portfolio by 85 BPS
Apple Inc AAPL
Apple, Inc. –
 Current Price : $ 373.62
373
 52 week range: $ 235.56 ‐ $ 404.50
 Target Price (DCF) : $ 478.67 (↑28.1%)
a get ce ( C ) : $ 478.67 (↑ 8. %)
 Analyst 1 year Target : $ 494.20 (↑32.3%)
Apple Inc AAPL
Apple, Inc. –
 Drivers
 Strong sales in iPhone and iPad segments
 66% of mobile phone profits
 Risks
 iPad supply concerns
 Pending litigation
 HTC, Samsung, Amazon, retail stores
HTC S
A
il Apple Inc AAPL
Apple, Inc. –
Absolute
Valuation
High
Low
Median
Current
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
81.6
7.2
11.9
132.60
1161.1
C.
12.7
0.6
1.2
5.09
9.5
D.
30.4
3.6
5.3
25.88
34.6
E.
13.5
3.9
5.6
12.76
16.2
 Average : $430.10
#Your
Target
Multiple
F.
16
4.2
6
15
20
*Your
Target
E, S, B,
etc/Share
G.
27.68
95.84
66.75
29.29
23.26
Your
Target
Price
(F x G)
H.
442.88
402.55
400.50
439.35
465.20
Apple Inc AAPL
Apple, Inc. –
 Current SIM Weight : 5.51%
g
55
 July’s 2nd highest performer – 16.33% return
 Recommended Weight : 4.26%
eco
e ded e g t : 4. 6%
 Recommendation : Sell 125 bps
Corning Inc GLW
Corning Inc ‐
Performance
M h to Date
Month
D
‐21.84
8
Quarter to Date
‐28.69
Year to Date
‐24.48
44
Corning Inc GLW
Corning Inc ‐
Stock Price History
Valuation Metrics
Market Cap (intraday)5:
Enterprise Value (Aug 5, 2011)3:
T ili P/E (tt Trailing P/E (ttm, intraday):
Forward P/E (fye Dec 31, 2012)1:
21.85B
Beta:
1.43
52‐Week Change3:
‐24.61%
S&P500 52‐Week Change3:
6.60%
23.43
18.68B
6.60
6.35
PEG Ratio (5 yr expected)1:
0.67
52‐Week High (Feb 4, 52
Week High (Feb 4, 2011)3:
Price/Sales (ttm):
Price/Book (mrq):
3.12
1.07
52‐Week Low (Aug 4, 2011)3:
14.45
Enterprise Value/Revenue (ttm)3:
2.56
50‐Day Moving Average3:
17.11
Enterprise Value/EBITDA (tt )3:
(ttm)
77.677
200‐Day Moving A
Average3:
19.89
9 9
Corning Inc GLW
Corning Inc ‐
Segment Statistics
Segment
Sales
Earnings
Profit Margin
Display Technologies 3011
45.40%
2990
96.86%
99.3%
Telecommunications 1712
25.81%
97
3.14%
5.7%
E i
Environmental
l
86
816
12.30%
%
42
1.36%
6%
5.1%
%
Specialty Material
578
8.71%
(27)
‐.87%
‐4.7%
Life Sciences
508
7.66%
60
1.94%
11.8%
Other
7
.11%
(75)
‐2.43%
‐1071.4%
Total
6632
100%
3087
100%
Corning Inc GLW
Corning Inc ‐
Business Analysis
• Because of advanced technical abilities and patented technology, its has Because of advanced technical abilities and patented technology its has grown to achieve a 60% market share of the LCD glass market
•Its flagship offering is Gorilla® Glass ‐ an environmentally friendly g
y
alkali‐aluminosilicate thin‐sheet glass that is extremely durable
• Its telecommunications is expected to benefit from renewed telecom spending for high bandwidth FTTP networks
• Recently introduced two new diesel engine filters which should benefit from more stringent emission regulations
•Unveiled new drug detection system to help pharmaceutical companies to identify effective drugs
Main Business Drivers:
‐ LCD display demand ‐ FTTP networks ‐ Emission Regulation
Corning Inc GLW
Corning Inc ‐
Source: ycharts.com
Corning Inc GLW
Corning Inc ‐
Multiples valuation
p
Absolute
Valuation
High
A.
Low
B.
Median
C.
Current
D.
#Your
Target
Multiple
utpe
E.
F.
*Your
Target E,
S, B,,
etc/Share
G.
Your Target
Price
((F x G)
H.
P/Forward E
121.1
7.7
17
8.1
17
2.05
34.85
P/S
8.9
.2
4.7
3.8
4.7
4.43
20.82
P/B
7.7
.3
2.2
1.4
1.8
1.9
3.4
P/EBITDA
85.5
3.96
11.21
5.96
8
2.48
27.80
P/CF
45.1
1.1
13.4
6.5
13.4
2.5
33.5
Corning Inc GLW
Corning Inc ‐
Target Price
Weight
Multiple Evaluation
24.07
40%
DCF Evaluation
25.42
54
60%
Weighted Average Target Price: $24.88
W
i ht d A
T
t P i $ 88
Current Price:$14.5
Upside: 70%
Recommendation: Hold
Hewlett Packard HPQ
Hewlett‐Packard ‐
 HPQ is a member of the Diversified Computer Q
p
Systems industry
 Provides products, technologies, software, solutions, and services
 Provides to individual consumers, small‐ and medium‐sized businesses, large enterprises
 Very large, entrenched firm serving technology needs of all types of customers
d f ll
f
Hewlett Packard HPQ
Hewlett‐Packard ‐
 Divided into 7 Operating Segments:
7 p
g g
 Services
 Enterprise Storage and Servers
 HP Software
 Personal Systems Group
 Imaging and Printing Group
 HP Financial Services
 Corporate Investments
C
HPQ Price Performance
12‐Month Price Performance
60
50
40
30
Adjusted Closing Price
20
10
0
Hewlett Packard HPQ
Hewlett‐Packard ‐
 Y/Y Performance has been poor p
 YTD Performance has been even worse
 Reasons:
easo s:
 CEO Turnover
 Poor guidance on conference calls
g
 Stock has gapped lower over last 2 quarters after the earnings announcement, and then drifted around that area
Hewlett Packard HPQ
Hewlett‐Packard ‐
Year‐over‐Year Revenue Growth Projections
2011
2012
2013
Services
‐0.25%
5
0.00%
0.50%
5
ESS
18.15%
10.00%
7.00%
HP Software
9 36%
9.36%
9 00%
9.00%
9 00%
9.00%
PSG
‐2.20%
‐1.00%
0.00%
IPG
7.07%
3.00%
2.00%
HPFS
18.06%
15.00%
15.00%
Corp. Investments
‐63.56%
10.00%
10.00%
Hewlett Packard HPQ
Hewlett‐Packard ‐
Fiscal Year Revenue Projections
2011
2012
2013
Services
35,282 35,282 35,459 ESS
23,374 25,712 27,512 3 217 3,217 3 507 3,507 3 822 3,822 PSG
39,839 39,440 39,440 IPG
27,587 28,414 28,983 3,597 3,597
4,137 4,
37
4,758 4,75
316 348 383 HP Software
HPFS
Corp. Investments
Hewlett Packard HPQ
Hewlett‐Packard ‐
Segment Operating Margin Projections
2011
2012
2013
Services
14 58%
14.58%
13 50%
13.50%
13 50%
13.50%
ESS
12.79%
13.00%
13.00%
HP Software
21.84%
20.00%
20.00%
PSG
5.49%
4.90%
4.90%
IPG
17.30%
17.00%
17.00%
9.11%
%
9.00%
%
9.00%
%
‐118.43%
4.00%
4.00%
HPFS
Corp. Investments
Hewlett Packard HPQ
Hewlett‐Packard ‐
Operating Earnings Projections
2011
2012
2013
Services
5,143 5 143 4,765 4 765 4,787 4 787 ESS
2,989 3,343 3,577 703 701 764 PSG
2,186 ,
1,933 ,933
1,933 ,933
IPG
4,775 4,836 4,927 328 8 372 428 8 14 15 HP Software
HPFS
Corp. Investments
(375)
Hewlett Packard HPQ
Hewlett‐Packard ‐
Projected Target Price
 Projected Price: $66.84
 Projected Upside: 121%
j
p
Hewlett Packard HPQ
Hewlett‐Packard ‐
Current Valuation Metrics
 P/E = 8.02
 Industry Average = 17.60
y
g
7
 P/B = 1.67
 Price/Sales = 0.53
/
53
 PEG Ratio = 0.70
Hewlett Packard HPQ
Hewlett‐Packard ‐
HPQ Guidance
Q
 Focused on positioning themselves better for the future
 Main area of investment is in Services
 Trying to better align their Services toward higher‐
margin offerings
 Won’t be immune from Japanese earthquake
 Are trying to reduce impacts as much as possible
d
h
bl
 Regaining lost market share in Asia, after other competitors have entered this space
tit h t d thi Hewlett Packard HPQ
Hewlett‐Packard ‐
HPQ Recommendation
Q
 Maintain the same weighting as currently held
 Facing some headwinds, as well as internal ac g so e ead
ds, as e as te a
positioning for a profitable future
 Solid stock to maintain
Google GOOG
Google ‐
 Market Cap:186.96B
 Current Price:579.04
 52 week rage:447.65‐624.96
 ROE:19.47%
 Beta:0.88
Google GOOG
Google ‐
 Drivers:  Trusted, highly recognized brand
 Rapid change and converging
 Global Operations and Geographic Data
 Seasonality: Internet usage generally slows during the summer months, and commercial queries typically increase significantly in the fourth quarter of each year.
increase significantly in the fourth quarter of each year
 Risks:
 Intense competition
p
 Generate revenue based on advertising; 96%. Cutting expense or losing advertiser would harm a lot
Google GOOG
Google ‐
Google GOOG
Google ‐
Intel Corporation (INTC)
 Market Cap: 110.06billion
p
 Current price:20.79
5
52 week range:17.60
ee a ge: 7.60 ‐ 23.96
3.96
 ROE: 25.91%
Intel Corporation (INTC)
 Drivers
 Remarkable strong business with high market share of the microprocessor business worldwide, 70%
 Invest many times more than their competitors in R &D, new products and low‐cost production facilities
 Like new chips they developed enhance speed and reduce power consumption
 Intel is the leading player in sever market. Large companies like the Amazon, the Netflix's and the Google still build server farms to store and deliver their data to customers and business
Intel Corporation (INTC)
 Risk
 Basically Information and Technology sector is very fickle due to the changeable customer demand, market acceptance and competitors’ actions k d i
’ i
 PC business is slowing down: Excess capacity; low demand; slow upgrade cycle
 The threaten of smartphones and tablets Intel Corporation (INTC)
Segments (million)
PC Client
Group
Sales
%
Earnings
%
Profit
Margin
31,598
72.43%
13,304
85.35%
42.10%
Data Center 8,693
Group
19.93%
4,395
28.19%
50.56%
Other Intel Oth
I t l 1,784
8
Architectur
e Operating
Segments
g
4.09%
%
(6 )
(60)
‐0.38%
8%
‐3.36%
6%
Software
1,548
and Service Group
3.55%
(2,051)
‐13.16%
‐132.49%
Total
100%
15,588
100%
43,623
Intel Corporation (INTC)
 ROE
Intel Corporation (INTC)
 Earnings per share
g p
Intel Corporation (INTC)
Relative to
Industryy
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Relative to S&P
500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Low
Median
Current
1.1
1.5
1.3
13
1.3
1.4
0.38
0.07
0.7
09
0.9
0.5
0.82
0.83
1.0
11
1.1
0.9
0.89
0.86
0.9
10
1.0
0.9
High
Low
Median
Current
2.7
2.9
2.0
5.3
2.2
0.64
0.69
1.0
1.9
0.7
1.2
1.2
1.3
2.9
1.1
0.72
0.72
1.1
2.0
0.7
Intel Corporation (INTC)
Absolute
Valuation
High
Low
Median
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
67.5
8.3
65
6.5
26.98
25.5
C.
9.4
1.8
18
1.8
5.38
6.5
D.
19.5
3.9
34
3.4
10.11
11.9
Current
E.
9.9
2.6
25
2.5
5.65
7.1
Target Price
Weight
Multiple Evaluation
24.75
40%
DCF E l i
DCF Evaluation
28.16
8 6
6 %
60%
#Your
Target
Multiple
F.
10.2
2.5
30
3.0
6.7
7.4
Weighted Average Target Price: $26
C
Current Price:$20.79
t P i $
Upside:25%
*Your
Target
E, S, B,
etc/Share
G.
2.26
9.16
8 95
8.95
3.96
3.15
Your
Target
Price
(F x G)
H.
23.05
22.9
26 84
26.84
26.53
23.32
MasterCard (MA)
 Market Cap: 41.49billion
p 4 49
 Current price: $326.54
5
52 week rage: 191.00 –
ee age: 9 .00 340.4
340.42
 ROE: 42.47%
MasterCard (MA)
 Drivers
 International Transactions accounted for 60% of Revenue, will only continue to grow
 Consumer spending rose 2.5% in the second quarter, despite the economy
 ISIS mobile payment platform –
ISIS mobile payment platform MA is now a partner
 Google wallet – competitor to ISIS – MA is a founding p
partner (Visa is not)
(
)
MasterCard (MA)
 Risks
 US Government – Federal Reserve almost eliminated debit card transaction fees
 Foreign Governments –
F i G
many governments will dislike ill di lik of populace becomes burdened with credit card debt
MasterCard (MA)
 ROE
MasterCard (MA)
Relative to
Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Relative to S&P
500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Low
Median
Current
2.5
2.1
60
6.0
7.0
4.6
1.0
0.82
13
1.3
0.9
1.4
1.4
1.2
28
2.8
3.4
1.8
1.2
1.1
23
2.3
2.7
1.6
High
Low
Median
Current
2.7
2.2
75
7.5
7.3
4.4
1.1
0.96
14
1.4
1.0
1.5
1.4
1.3
33
3.3
4.8
2.1
1.5
1.3
34
3.4
5.3
2.0
MasterCard (MA)
Absolute
Valuation
High
Low
Median
Current
#Your
Target
Multiple
i
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
34.5
10.1
13.4
51.8
48.1
C.
13.5
1.5
3.8
7.65
13.7
D.
17.5
5.4
8.4
13.18
18.8
E.
16.9
6.9
7.1
13.04
18.7
F.
17.5
6.9
8.4
13.18
18.8
*Your
Target
E, S,
S B,
etc/Share
$326.54
G.
22.6
50.74
45.99
24.78
17.46
Target Price
Weight
Multiple Evaluation
$357.35
40%
DCF Evaluation
$396.55
60%
Weighted Average Target Price: $380.87
C
Current Price:$326.54
P i
6
Upside:21.4%
Recommendation: Hold
Your
Target
Price
i
(F x G)
H.
$395.50
$350.10
$386.32
$326.60
$328.25
Information Technology Stocks Recommendation
Company
Current SIM Weight
Decision
Apple Inc
5.51%
Sell 125 BPS
Corning Inc
3.22%
3 22%
HOLD
Google
3.12%
Buy 40 BPS
Hewlett Packard Co
3.59%
HOLD
p
Intel C
Corp
33.40%
4 %
O
HOLD
MasterCard
3.71%
HOLD
Total
22.55%
Decrease overall IT portfolio by 85 BPS
Information Technology Stocks Recommendation
 Hewlett Packard and Corning Inc are past their g
p
downturn and are poised for a rebound
 Google has the least amount of weight in the SIM portfolio
 Apple must be sold because it has too much weight in the SIM portfolio
 MasterCard looks promising but we feel Google is a better stock for the 40 BPS b
kf h
Appendices – Apple DCF
Apple (AAPL)
Analyst: Zak Kramer
Date: 7/7/2011
Year
2011E
Revenue
103,550
% Grow th
2012E
128,207
23.8%
Operating Income
29,512
Operating Margin
28.5%
Interest, net
Interest % of Sales
Other Expenses
% of Sales
Taxes
Tax Rate
36,924
29.9%
29.4%
6.1%
55,050
28.2%
205,754
5.4%
55,965
27.2%
216,247
5.1%
56,440
26.1%
226,843
4.9%
58,072
25.6%
237,618
4.75%
59,405
25.0%
497
527
556
584
612
642
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
(207.10)
(192.31)
(220.54)
(240.61)
(259.14)
(275.98)
(292.82)
(308.63)
(324.37)
(340.26)
(356.43)
-0.20%
-0.15%
-0.15%
-0.15%
-0.15%
-0.15%
-0.15%
-0.15%
-0.15%
-0.15%
-0.15%
7,133
8,923
23,662
24.0%
28,257
1,923
209,344
239,173
448,517
6.76%
15.5
19.9
11.0
14.1
937
373.62
478.67
28.1%
10,593
24.0%
33,545
18.7%
2,058
11,653
24.0%
36,662
9.3%
2,246
12,841
24.0%
40,404
10.2%
2,246
13,101
24.0%
41,212
2.0%
2,392
13,338
24.0%
41,946
1.8%
2,440
13,565
24.0%
42,647
1.7%
2,469
13,686
24.0%
43,014
0.9%
2,379
14,084
24.0%
44,260
2.9%
2,495
14,411
24.0%
45,279
2.30%
2,614
1.5%
1.4%
1.4%
1.3%
1.3%
1.3%
1.2%
1.1%
1.1%
1.1%
(5)
(1,532)
(1,764)
(1,900)
(2,024)
(1,952)
(2,058)
(2,162)
(2,268)
(2,376)
0.0%
3,590
2.8%
26,724
12.9%
$
$
54,093
195,212
466
% Grow th
Shares Outstanding
30.7%
6.5%
2021E
0.3%
3.5%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
53,037
183,989
2020E
433
3.0%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
30.0%
7.7%
2019E
0.3%
3,624
Free Cash Flow
48,122
172,759
2018E
0.3%
3,141
Capex % of sales
9.1%
2017E
397
1.6%
% of Sales
160,408
2016E
449
1,657
Subtract Cap Ex
43,962
28.8%
25.1%
Plus/(minus) Changes WC
14.7%
2015E
0.35%
22,586
% of Sales
147,028
2014E
414
% Grow th
Add Depreciation/Amort
2013E
11.25%
4.75%
0.40%
24.0%
Net Income
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Terminal Discount Rate =
Terminal FCF Growth =
-1.0%
3,823
2.6%
30,521
14.2%
47%
53%
100%
-1.1%
3,529
2.2%
33,867
11.0%
-1.1%
3,455
2.0%
37,552
10.9%
-1.1%
3,128
1.7%
38,681
3.0%
-1.0%
2,733
1.4%
39,887
3.1%
-1.0%
2,469
1.2%
40,760
2.2%
-1.0%
2,379
1.1%
41,031
0.7%
-1.0%
2,495
1.1%
42,180
2.8%
Terminal Value
Free Cash Yield
12.4
15.9
8.8
11.3
10.4
13.4
7.4
9.6
-1.0%
2,614
1.1%
43,099
2.2%
694,565
6.21%
Terminal P/E
15.3
Terminal EV/EBITDA
11.1
Appendices – Corning Inc DCF
Appendices – Hewlett Packard DCF
Appendices – Intel Corporation DCF
Appendices – MasterCard DCF
MasterCard (MA)
Analyst: Steve Meechan
Date: 8/8/2011
Terminal Discount Rate =
Terminal FCF Growth =
Year
2011E
2012E
2013E
2014E
Revenue
6,647
7,444
8,338
9,213
% Grow th
12.0%
Operating Income
3,609
Operating Margin
54.3%
2
Interest and Other
Interest % of Sales
0.0%
1,205
Taxes
Tax Rate
34.0%
Net Income
2,338
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
4,191
56.3%
3
0.0%
1,400
34.0%
2,717
11.5%
5,003
60.0%
4
0.1%
1,673
34.0%
3,247
10.5%
5,528
60.0%
5
0.1%
1,881
34.0%
3,651
2015E
10,135
10.0%
5,675
56.0%
5
0.1%
1,931
34.0%
3,749
11.0%
4.0%
2016E
11,047
9.0%
6,186
56.0%
6
0.1%
2,105
34.0%
4,086
2017E
11,986
8.5%
6,712
56.0%
6
0.1%
2,284
34.0%
4,434
2018E
12,944
8.0%
7,249
56.0%
6
0.1%
2,467
34.0%
4,789
2019E
13,721
6.0%
7,684
56.0%
7
0.1%
2,615
34.0%
5,076
2020E
14,270
4.0%
7,991
56.0%
7
0.1%
2,719
34.0%
5,279
2021E
14,841
4.0%
8,311
56.0%
7
0.1%
2,828
34.0%
5,490
16.2%
19.5%
12.5%
2.7%
9.0%
8.5%
8.0%
6.0%
4.0%
4.0%
171
184
239
286
294
309
336
362
384
400
416
2.6%
2.5%
2.9%
3.1%
2.9%
2.8%
2.8%
2.8%
2.8%
2.8%
2.8%
(21)
(48)
(54)
(29)
(30)
(30)
(31)
(31)
(25)
(17)
(18)
-0.3%
-0.6%
-0.6%
-0.3%
-0.3%
-0.3%
-0.3%
-0.2%
-0.2%
-0.1%
-0.1%
Subtract Cap Ex
180
199
258
267
284
309
336
362
384
400
416
Capex % of sales
2.7%
2.7%
3.1%
2.9%
2.8%
2.8%
2.8%
2.8%
2.8%
2.8%
2.8%
Free Cash Flow
2,308
% Grow th
15.0%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
23,315
28,633
51,948
5.40%
Current P/E
Projected P/E
Current EV/EBITDA
Projected
j
EV/EBITDA
18.3
22.2
10.4
12.8
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2,654
131
$
$
326.54
396.55
21.4%
3,174
19.6%
45%
55%
100%
3,641
14.7%
3,729
2.4%
4,057
8.8%
4,403
8.5%
4,757
8.0%
5,051
6.2%
5,262
4.2%
Terminal Value
Free Cash Yield
15.7
19.1
9.0
11.0
13.2
16.0
7.5
9.2
5,472
4.0%
81,302
6.73%
Terminal P/E
14.8
Terminal EV/EBITDA
8.9