Alex Cooper
Evan Cottington
Zach Gilbert
Kevin Gill
Todd Ireland
Agenda
 Sector Overview
 Best Buy
 Comcast
 General Motors
 Recommendation Summary
 Q&A
Sector Overview
S&P 500 Weights
SIM Weights
(as of April 30, 2011)
(as of April 30, 2011)
SIM portfolio is overweighted by 0.01%
Consumer Discretionary Sector Overview
Current Consumer Discretionary Holdings
(as of April 30, 2011)
3.27%
3.56%
3.78%
Consumer Discretionary Sector Overview
Recommendation
Sector Recommendation Recap:
 Underweight Consumer Discretionary Sector by 50
basis points
Our Company Recommendation:
 SELL 50 BP of Best Buy

This would reduce our position in BBY to about 2.77%
Consumer Discretionary Sector Overview
Best Buy Co.
 Multi-national retailer of consumer electronics, home
office products, entertainment products, appliances
and related services
 Two segments: Domestic and International
 Domestic segment is comprised of all operations within
the U.S. and its territories
 International segment is comprised of all operations
outside the U.S. and its territories
 World’s leading consumer electronics specialty retailer
 Differentiate from competitors from it’s customercentric shopping environment and service offerings
BBY
Last Price: $31.52
[as of May 21, 2011]
52-Wk Range: 45.63 – 28.09
Volume: 4,833,025
Avg Volume (3m): 7,905,050
Market Cap: 12.20B
P/E (ttm): 10.17
EPS (ttm): 3.08
Div & Yield: 0.60 (1.90%)
10-year Price Chart
•
•
•
Stock: Best Buy Co., Inc.
Industry: Specialty Retail
Index: S&P 500
2006
2007
2008
2009
2010
YTD
Stock
14.0
7.7
-45.6
42.9
-11.6
-8.2
+/- Industry
19.4
2.6
-3.3
-24.6
-33.5
-14.7
+/- S&P 500
0.3
4.2
-7.1
19.4
-24.4
-14.2
Total Returns %
Source: Morningstar
Income Statement
Revenue Growth (from 2002 to 2011) in millions of $
Sales %
EPS %
Dividend %
1 Year
1.16
-0.46
3.57
3 Years
7.90
-0.42
8.03
5 Years
10.26
6.28
13.35
Domestic & International Segments
Revenue
FY
2006
Revenue
Domestic
Revenue (decline) gain %
International
Revenue (decline) gain %
Total Revenue
FY
2007
FY
2008
FY
2009
FY
2010
27,380
FY
2011
31,031
33,328
35,070
37,314 $37,186
13.33%
7.40%
5.23%
6.40%
-0.34%
3,468
4,903
6,695
9,945
12,380 $13,086
41.38% 36.55% 48.54% 24.48%
5.70%
$ 30,848 $ 35,934 $ 40,023 $ 45,015 $ 49,694
50,272
Domestic Revenue = approx. 75% of Total Sales
International Revenue = approx. 25% of Total Sales
Analyst: Alex Cooper
Terminal Discount Rate =
11.00%
Terminal FCF Growth =
3.00%
5/23/2011
Year
Revenue
% Grow th
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Minority Interest
Interest % of Sales
Net Income
2012E
51,403
2.25%
2,719
5.29%
72
0.14%
% of Sales
Plus/(minus) Changes WC
% of Sales
3,017
5.59%
59
0.11%
56,942
5.50%
3,405
5.98%
34
0.06%
1,108
1,238
36.00%
36.00%
2015E
59,960
5.30%
2,458
4.10%
2016E
62,970
5.02%
2,550
4.05%
2017E
65,803
4.50%
2,665
4.05%
2018E
68,435
4.00%
2,566
3.75%
2019E
70,831
3.50%
2,656
3.75%
2020E
73,097
3.20%
2,376
3.25%
2021E
75,290
3.00%
2,259
3.00%
2022E
77,549
3.00%
2,326
3.00%
132
139
145
151
156
161
166
171
0.22%
0.22%
0.22%
0.22%
0.22%
0.22%
0.22%
0.22%
838
36.00%
868
36.00%
907
36.00%
870
36.00%
900
36.00%
797
36.00%
754
36.00%
776
36.00%
(49)
(45)
(58)
(48)
(50)
(53)
(55)
(57)
(58)
(60)
(62)
-0.10%
-0.08%
-0.10%
-0.08%
-0.08%
-0.08%
-0.08%
-0.08%
-0.08%
-0.08%
-0.08%
1,737
1,924
2,143
1,441
1,493
1,560
1,491
1,544
1,359
1,279
1,318
10.8%
1,208
1,241
11.4%
1,253
-32.8%
1,199
3.6%
1,259
4.5%
1,316
-4.4%
1,369
3.5%
1,417
-12.0%
1,462
-5.9%
1,506
3.0%
1,551
2.35%
2.30%
2.20%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
447
556
(271)
(0)
(252)
(263)
(274)
(283)
(292)
(301)
(310)
0.87%
1.03%
-0.48%
-0.40%
-0.40%
-0.40%
-0.40%
-0.40%
-0.40%
-0.40%
-0.40%
1,139
1,199
1,259
1,316
1,369
1,417
1,462
1,506
1,551
925
Capex % of sales
1.80%
% Grow th
5.00%
1,005
Subtract Cap Ex
Free Cash Flow
53,973
2014E
36.00%
% Grow th
Add Depreciation/Amort
2013E
2,467
1,025
1.90%
2,697
9.32%
2.00%
2.00%
2.00%
1,986
1,441
1,241
-26.37%
-27.4%
-13.8%
2.00%
1,297
4.5%
2.00%
1,218
-6.1%
2.00%
1,260
3.5%
2.00%
2.00%
1,067
978
-15.4%
-8.3%
2.00%
2.00%
1,008
3.0%
Valuation Analysis
Current Valuation
Stock Valuation
Relative to
Industry
High
Low
Median
Current
P/Trailing E
1.4
0.50
0.99
0.93
P/Forward E
1.5
0.27
0.99
0.96
P/B
1.8
0.9
1.2
1.1
P/S
1.5
0.8
1.1
0.9
P/CF
1.6
0.8
1.1
0.9
Relative to S&P
500
High
Low
Median
Current
P/Trailing E
1.6
0.54
1.0
0.56
P/Forward E
1.5
0.58
1.0
0.62
P/B
2.5
0.7
1.5
0.7
P/S
0.7
0.2
0.4
0.2
P/CF
2.1
0.5
1.2
0.5
Best Buy is currently undervalued in these category relative to the median
Price Target
Absolute
Valuation
High
Low
Median
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
30.1
1.1
8.5
18.81
27.8
C.
8.3
0.2
1.6
3.22
4.4
D.
16.2
0.6
4.0
8.94
12.7
Current
E.
8.7
0.2
1.7
3.80
5.1
#Your
Target
Multiple
F.
9.8
0.5
3.5
5.8
7.65
*Your
Target
E, S, B,
etc/Share
G.
4.5
77
18.29
6.5
7.8
Your
Target
Price
(F x G)
H.
44.10
38.50
64.02
37.70
20.67
Average from multiples valuation: $41.00
Price Target Calculation
Method
DCF
Multiples
Combined
Weight
0.5
0.5
1
Target
$ 36.07
$ 41.00
$ 38.54
Current Price
Upside
$31.52
24%
Target Price: $39
Upside: 24%
Opportunities
 Management’s commitment to reducing the square
footage of traditional big-box format stores 10% over
the next three to five years
 Expects to result in $70 million - $80 million in annual
savings
 600-800 standalone Best Buy Mobile stores over the
next 5 years, compared with 177 today
 Increase online sales
 International opportunities – Five Star brand in China
 Operating margins of 3.7% & lower-cost store format
Risks
o Increased competition from mass merchant rivals,
online retailers, and consumer electronics
manufacturers
o Limited growth in consumer electronics industry
due to a very saturated product market
o Risks associated with Best Buy Mobile
o
Diminishing returns on invested capital in BBM concept over
extended horizon
o Risks associated with online business
o Shrinking sales of entertainment software category
o video gaming hardware and software, DVDs, Blu-rays,
compact discs (CDs), digital downloads and computer software
Respecting the class’s recommendation to underweight
Consumer Discretionary Sector by 50 basis points
Some things to think about:
Restructuring costs are predicted to amount to $225 245 million in the next year, lowering operating margins.
But, shareholder value may due to
$1.3 billion authorization remaining under
existing share repurchase authority
Leading to an in EPS
Recommendation
 Sell 50 basis points of Best Buy Co.
 Although the company gained market share from the
fall of Circuit City, this failure invited increased
competition from mass merchants, warehouse clubs and
online retailers, changing the economics of the
consumer electronics retail category
 Sales have strong correlation with disposable income
 Consumer confidence still lower reducing demand for
consumer electronics products
 Increase in online sales due to increase in gas prices?
Comcast
Key Statistics
 Market Cap: 68.13B
 Enterprise Value: 106.88B
 Beta: 1.09
 52-week High/Low: 27.16/16.30
 Div & Yield: $0.45 (1.80%)
Business Overview
 Nation’s largest video, high speed
internet, and phone provider
reaching 52 million households
 Majority owner and manager of NBC
Universal
 Core cable business accounts for 68%
of revenue
Comcast Corp. headquarters in Philadelphia, PA
st
1
Quarter 2011 Highlights
 Consolidated revenue
 Increased 31.8% to $12.1 billion
 ARPU up from $122 to $133
 Consolidated operating income
EPS: $0.36 (excluding NBC
transaction costs)
YOY change: 9.7%
Analyst consensus: $0.34
 Increased 14.9% to $2.2 billion
 Addition of 418,000 high-speed Internet customers and 260,000
phone customers
 Loss of 39,000 video customers (lowest loss in 4 years)
 Cable networks primary driver of NBC Universal’s results
 Cable network revenue up 13% to $2 billion
 Repurchase of approx. 23 million shares
 Will continue repurchasing throughout remainder of 2011
 Approx. $261 million in dividends paid
Opportunities & Risks
Opportunities
• Strong growth in home and business high-speed internet
and voice subscriptions
Risks
• Continued pressure from satellite TV providers,
traditional cable providers, wireline phone companies, and
wireless phone companies
• Better retention of current subscribers
• Robust and growing content offering through Xfinity On
Demand
• Relatively new threat: internet based video services that
offer online video streaming and downloading of content
for a small fee
• “TV Everywhere” strategy – iPhone/iPad apps for On
Demand viewing
• Increase in 4G wireless broadband technology will
compete with high-speed internet services
• DOCSIS 3.0 infrastructure in place to offer faster internet
connectivity
• NBC’s broadcast network is way behind its peers in terms
of revenue – increased investment in this area may prove
unsuccessful
• New offerings and technologies possible due to integration
of content and distribution with NBCU acquisition
Date
04/01/2011
12/01/2010
08/01/2010
04/01/2010
12/01/2009
08/01/2009
04/01/2009
12/01/2008
08/01/2008
04/01/2008
12/01/2007
08/01/2007
04/01/2007
12/01/2006
08/01/2006
04/01/2006
12/01/2005
08/01/2005
04/01/2005
12/01/2004
08/01/2004
04/01/2004
12/01/2003
08/01/2003
04/01/2003
12/01/2002
08/01/2002
04/01/2002
12/01/2001
08/01/2001
04/01/2001
Closing Price
10-year Price Chart
Comcast 10-year Closing Prices
35.00
30.00
25.00
20.00
15.00
10.00
CMCSA price
5.00
0.00
Earnings and Revenue Trends
Revenues (millions)
Revenues (4 QTR Moving Average)
16000
14000
12000
10000
8000
6000
4000
2000
0
Earnings Per Share (4 QTR Moving Average)
0.50
EPS
0.40
0.30
0.20
0.10
0.00
DCF
Terminal
Discount
Rate =
Terminal
FCF
Growth =
Comcast (CMCSA)
Year
Revenue
2011E
57,505
% Growth
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Minority Interest
Interest % of Sales
Net Income
% Growth
60,603
5.4%
10,587
18.4%
3,537
6.2%
2,679
38.0%
46
0.1%
4,417
% Growth
Free Cash Flow
2012E
8,042
11,219
18.5%
3,727
6.2%
2,772
2013E
64,188
5.9%
11,937
18.6%
3,948
6.2%
2,876
37.0%
36.0%
48
51
0.1%
4,768
0.1%
5,164
2014E
68,040
6.0%
12,587
18.5%
4,184
6.2%
3,025
36.0%
54
0.1%
5,323
2015E
72,122
6.0%
13,343
18.5%
4,435
6.2%
3,207
36.0%
58
0.1%
5,643
Current Price
$ 24.55
10.5%
Implied equity value/share
$ 32.11
3.00%
Upside/(Downside) to DCF
30.8%
2016E
75,728
5.0%
14,010
18.5%
4,657
6.2%
3,367
2017E
78,757
4.0%
14,570
18.5%
4,844
6.2%
3,502
2018E
81,514
3.5%
15,080
18.5%
5,013
6.2%
3,624
2019E
84,367
3.5%
15,608
18.5%
5,189
6.2%
3,751
36.0%
36.0%
36.0%
36.0%
61
63
65
67
0.1%
5,925
0.1%
6,162
0.1%
6,378
0.1%
6,601
2020E
87,319
3.5%
16,154
18.5%
5,370
6.2%
3,882
36.0%
70
0.1%
6,832
2021E
89,939
3.0%
16,639
18.5%
5,531
6.2%
3,999
36.0%
72
0.1%
7,037
7.9%
8.3%
3.1%
6.0%
5.0%
4.0%
3.5%
3.5%
3.5%
3.0%
8,580
9,732
10,168
10,042
9,768
9,352
8,843
8,309
7,714
7,037
6.7%
13.4%
4.5%
-1.2%
-2.7%
-4.3%
-5.4%
-6.0%
-7.2%
-8.8%
Valuation Analysis
Relative to Sector
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
22.9
20.1
.9
1.6
2.8
.3
.3
.4
1.0
.5
1.9
1.6
.7
1.3
1.2
1.1
1.0
.5
1.1
.6
Relative to Industry
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.2
1.1
.8
1.6
1.1
.78
.92
.5
1.0
.9
.99
1.0
.6
1.3
1.0
.99
.98
.6
1.1
.9
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
24.8
23.3
.8
3.0
2.0
.69
.80
.5
1.1
.4
2.4
2.0
.6
2.0
1.1
1.3
1.0
.7
1.3
.6
Below median in every category but one = undervalued
Price Target
Absolute
Valuation
High
Low
Median
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
435.4
4.4
2.9
19.46
21.2
C.
12.6
1.2
.9
2.98
4.2
D.
32.4
3.0
1.6
6.55
11.9
Current
#Your
Target
Multiple
E.
14.8
1.7
1.6
4.02
6.1
F.
20
1.8
1.6
5
8
*Your
Target
E, S, B,
etc/Shar
e
G.
1.6
20.9
16.5
6.14
3.75
Your
Target
Price
(F x G)
H.
32
37.6
23.1
30.7
30
Average from multiples valuation: 30.68
Price Target Calculation
Method
DCF
Multiples
Combined
Weight
0.5
0.5
1
Current Price
Upside
Target
$ 32.11
$ 30.68
$ 31.40
$24.55
28%
Target Price: $31
Upside: 28%
Recommendation
 HOLD
 Strong financials, strong growth for relatively mature market and
making moves to stay on top of changing consumer behavior
 Cable typically one of last things consumers cut back on (relatively
cheap entertainment option)
 If economy falls back toward recession ad revenue will decline as
companies cut back on marketing
General Motors
Key Statistics
 Market Cap: 45.9B
 Enterprise Value: 106.88B
 52-week High/Low: 29.17/39.48
Business Overview
 World’s second largest auto
manufacturer
 Entered bankruptcy protection June
9, 2009
 Emerged from bankruptcy, new
shares, new outlook
 Cut number of brands, and focused
more on smaller cars
 Poised to take advantage of new
demand domestic and abroad
General Motors
46 MPG
First Quarter Highlights
 EPS: $1.77
 “We are on plan,” said Dan Akerson, chairman and
CEO. “GM has delivered five consecutive profitable
quarters, thanks to strong customer demand for our
new fuel-efficient vehicles and a competitive cost
structure that allows us to leverage our strong brands
around the world and focus on driving profitable
automotive growth.”
 EBIT: $3.5B
First Quarter Highlights
GM
Q1 2010
Q1 2011
Revenue
$31.50
$36.20
Net income attributable to
common stockholders
$0.90
$3.20
Earnings per share (EPS)
diluted
$0.55
$1.77
EBIT
$1.80
$3.50
Less special items
$0.10
$1.50
EBIT – adjusted
$1.70
$2.00
Impact of special items on
EPS diluted
$0.08
$0.82
DCF
General Motors (GM)
Terminal
Discount
Rate =
Terminal
FCF
Growth =
Year
Revenue
2011E
147,112 158,146
% Growth
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Minority Interest
Interest % of Sales
Net Income
7.5%
9,562
6.5%
1,177
0.8%
2,994
33.0%
(338)
-0.2%
7,554
% Growth
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
2012E
12,019
7.6%
1,423
0.9%
3,457
33.0%
(364)
-0.2%
8,751
2013E
169,217
7.0%
14,891
8.8%
1,692
1.0%
4,002
33.0%
(389)
-0.2%
10,161
2014E
2015E
11.5%
4.00%
2016E
2017E
2018E
2019E
2020E
2021E
177,677 185,673 193,100 200,824 208,857 217,211 225,900 234,935
5.0%
15,103
8.5%
1,777
1.0%
4,398
4.5%
15,411
8.3%
1,857
1.0%
4,473
33.0%
33.0%
(533)
(557)
-0.3%
-0.3%
9,461
9,638
4.0%
15,448
8.0%
1,931
1.0%
4,461
33.0%
(579)
-0.3%
9,636
4.0%
14,058
7.0%
2,008
1.0%
3,976
33.0%
(602)
-0.3%
8,676
4.0%
13,576
6.5%
2,089
1.0%
3,791
33.0%
(627)
-0.3%
8,323
4.0%
13,033
6.0%
2,172
1.0%
3,584
33.0%
(652)
-0.3%
7,928
4.0%
13,102
5.8%
2,259
1.0%
3,578
33.0%
(678)
-0.3%
7,943
4.0%
13,626
5.8%
2,349
1.0%
3,721
33.0%
(705)
-0.3%
8,260
15.8%
16.1%
-6.9%
1.9%
0.0%
-10.0%
-4.1%
-4.7%
0.2%
4.0%
7,944
8,382
8,799
9,062
9,284
9,655
10,041
10,443
10,861
11,295
11,747
5.4%
5.3%
5.2%
5.1%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
(2,207)
(2,372)
(2,538)
(2,665)
(2,785)
(2,896)
(3,012)
(3,133)
(3,258)
(3,388)
(3,524)
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
8,827
8,698
9,138
5,508
6,499
8,689
10,041
10,443
10,861
11,295
11,747
6.0%
5.5%
5.4%
3.1%
3.5%
4.5%
5.0%
5.0%
5.0%
5.0%
5.0%
4,465
6,063
7,285
10,350
9,638
7,705
5,663
5,190
4,670
4,554
4,736
35.8%
20.2%
42.1%
-6.9%
-20.1%
-26.5%
-8.4%
-10.0%
-2.5%
4.0%
Price Target
Current Price
Implied equity
value/share
Upside/(Downside)
to DCF
$30.57
$38.31
25.3%
Key Ratios
GM
Gross
Margin
(TTM)
Net
Profit
Margin
(TTM)
Indust. Sector
S&P
500
12.07
4.71
11.66
32.94
3.95
0.81
-1.91
11.67
*Higher Gross Margin
indicates greater
efficiency
Valuation Analysis
Relative to Sector
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
.8
.7
1.1
.4
.6
.5
.5
.6
.3
.4
.6
.5
.7
.4
.5
.5
.5
.9
.3
.4
Relative to Industry
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
2.2
1.4
NM
1.0
1.7
1.8
.92
NM
.8
1.2
2
1.0
NM
1.0
1.4
1.8
.92
NM
.8
1.2
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
.81
.72
1.4
.3
.6
.62
.51
.8
.3
.4
.67
.57
.9
.3
.4
.62
.51
1.2
.3
.4
Opportunities & Risks
Opportunities
Risks
•Opportunities:
•Underfunded Pension
•Oil continues to rise, increasing demand for fuel efficient
•Price of oil dramatically drops
cars and alternative fuel cars
•Other Commodities (steel, rare earth metals)
•China-growth continues and is unhindered by the
•China-Government regulations hinder GM’s operations
government
•Major natural disaster-Similar to Japan in terms of scope
•Benefiting from Toyota’s misery
•Investing in technologies that may not pay off such as
electric cars
•UAW ownership could make decisions not in company’s
best interest
Rare Earth Metals
Opportunities & Risks
Opportunities
Risks
•Oil continues to rise, increasing demand for fuel
•Underfunded Pension
efficient cars and alternative fuel cars
•Price of oil dramatically drops
•China-growth continues and is unhindered by
•Other Commodities (steel, rare earth metals)
government
•China-Government regulations hinder GM’s
•Benefiting from Toyota’s misery
operations
•Major natural disaster-Similar to Japan in terms of
scope
•Investing in technologies that may not pay off such as
electric cars
•UAW ownership could make decisions not in
company’s best interest
Recommendation
 Hold
 GM’s restructuring and new product offerings will
allow it to capture market share and profits
 One of the biggest threats is Oil price, and GM is
in a position to take advantage of sustained high
prices
Recommendation Summary
Security
Ticker
Current Price
Target Price
Upside
Best Buy
BBY
$31.52
$39
24%
Comcast
CMCSA
$24.55
$31
28%
GM
$30.57
$38
25%
General Motors
CONCLUSION: SELL 50 BASIS POINTS OF BEST BUY
Questions?
Appendix
Kohl’s
Key Statistics
 Market Cap: 15.83B
 Enterprise Value: 15.86B
 Beta: 0.88
 52-week High/Low: 58.00/44.07
 Div & Yield: $1.00 (1.80%)
Business Overview
 Large department store chain offering private and exclusive, as well as national
branded apparel, soft home products, and housewares
 Strong operating margins even in the face of rising gas/commodity prices
compared to competitors
Opportunities & Risks
Opportunities
• Continued remodeling of stores means that most of its
stores will have been opened or remodeled within past 5
years
Risks
• May have overextended itself with store growth
• Other companies are trying to imitate Kohl’s off-the-mall
approach
• Greater percentage of sales is coming from higher-margin
private-label and exclusive-branded goods, which has
helped margins (J. Lo line coming in the fall)
• Discounters like Target have been investing in apparel,
which adds more competitive pressure
• Off-the-mall format continues to offer more convenient
option for consumers
• Strained middle-income consumers may spend less if
economic conditions worsen
DCF
Kohl's Corporation (KSS)
Year
Revenue
2011E
19,770
2012E
21,352
% Growth
Operating Income
2,106
138
149
738
813
-
Net Income
0.0%
1,229
% Growth
Free Cash Flow
% Growth
1,032
162
1,355
2,790
11.1%
176
899
1,499
Terminal
FCF
Growth =
3.50%
Upside/(Downside) to DCF
2015E
2016E
27,147
3,013
1,634
3,224
203
1,133
3,233
216
1,132
1,888
3,395
226
1,188
3,530
10.5%
235
1,236
37.5%
-
1,980
2020E
34,800
3,654
2,059
36,018
3.5%
3,782
10.5%
244
10.5%
252
0.7%
1,279
0.7%
1,324
37.5%
0.0%
2021E
3.5%
0.7%
37.5%
0.0%
16.4%
4.0%
0.7%
-
1,886
33,623
10.5%
37.5%
0.0%
2019E
5.0%
0.7%
0.0%
32,330
10.5%
37.5%
-
2018E
6.0%
0.7%
37.5%
1,765
30,790
11.1%
0.7%
0.0%
2017E
7.0%
11.1%
0.0%
29,047
8.0%
1,059
37.5%
0.0%
Implied equity value/share
190
980
$ 63.97
10.5%
0.7%
37.5%
$ 54.95
Terminal
Discount
Rate =
8.5%
0.7%
0.0%
25,136
11.1%
37.5%
-
Interest % of Sales
2,560
0.7%
37.5%
2014E
8.5%
10.9%
0.7%
Tax Rate
Minority Interest
2,317
10.7%
Interest % of Sales
Taxes
23,167
8.0%
Operating Margin
Interest and Other
2013E
Current Price
37.5%
0.0%
2,131
0.0%
2,206
10.2%
10.6%
9.0%
8.0%
7.0%
-0.1%
5.0%
4.0%
3.5%
3.5%
1,100
1,248
1,257
1,412
1,540
1,609
1,722
1,824
1,888
1,954
6.6%
13.4%
0.7%
12.3%
9.1%
4.5%
7.0%
6.0%
3.5%
3.5%
Valuation Analysis
Relative to Sector
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
2.3
1.9
4.3
4.1
4.4
.3
.4
.6
.8
.9
1.1
1.0
1.5
1.7
1.7
.9
.8
.6
.8
.9
Relative to Industry
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
2.8
2.6
4.5
6.9
4.8
.90
.74
.9
2.1
1.1
1.2
1.1
1.6
2.7
1.5
.96
.89
.9
2.1
1.1
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
2.4
2.1
3.1
2.5
3.7
.79
.83
.7
.6
.8
1.3
1.2
1.2
1.0
1.5
1.0
.85
.7
.7
.9
Below median in every category = undervalued
Price Target
Absolute
Valuation
High
Low
Median
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
45.6
3.8
10.6
29.65
47.4
C.
11.6
.7
1.6
4.53
6.8
D.
19.0
1.5
3.4
10.92
16.3
Current
#Your
Target
Multiple
E.
12.1
.9
1.7
6.3
9.1
F.
14.2
1
2.2
7.6
12
*Your
Target
E, S, B,
etc/Shar
e
G.
4.24
68.17
32.15
8.68
6.0
Your
Target
Price
(F x G)
H.
60.21
68.17
70.73
65.97
72.00
Average from multiples valuation: 67.42
Price Target Calculation
Method
Weight
Target
DCF
0.5
$ 63.97
Multiples
0.5
$ 67.42
Combined
1
Current Price
Upside
$ 65.70
54.95
19.5%
Target Price: $66
Upside: 19.5%
Company Overview
Brands
Sales
 Barbie
 U.S.: 54%
 Hot Wheels
 International: 46%
 Europe: 52%
 Latin America: 30%
 Asia Pacific: 11%
 Other: 7%
 Toy Story
 CARS
 Disney Classics
 Fisher-Price
 American Girl
 And many, many more
Key Statistics
 Last Price (5/20): $26.69
 P/E: 14.25
 52-Wk Range: 27.73-
 P/S: 1.63
20.14
 P/CF: 13.19
 Avg Volume: 3,780,217
 Dividend Yield: 3.45%
 Mkt Cap ($mil): 9,277
Mattel vs. S&P 500: 1-Year
Mattel vs. S&P 500: 3-Month
Ratio Comparison
Relative to
High
Industry
P/Trailing E
1.1
P/Forward E
1.1
P/B
1.7
P/S
1.7
P/CF
1.5
Relative to S&P
High
500
P/Trailing E
1.2
P/Forward E
1.2
P/B
1.9
P/S
1.6
P/CF
1.6
Absolute
High
Low
Valuation
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
23.0
2.0
5.7
12.64
14.9
C.
9.3
0.7
2.0
5.39
6.3
Low
Median
Current
0.7
0.82
0.8
1.0
0.8
Low
0.94
0.95
1.2
1.4
1.1
Median
0.9
0.93
0.9
1.0
1.0
Current
0.72
0.74
0.9
0.8
0.8
Median
Current
D.
14.3
1.5
3.4
8.61
11.3
E.
12.5
1.6
3.5
8.94
12.0
0.91
0.89
1.3
1.1
1.1
#Your
Target
Multiple
F.
14.3
1.5
3.4
8.61
11.3
1.0
0.88
1.5
1.2
1.2
*Your
Target
E, S, B,
etc/Share
G.
2.13
18.03
8.10
3.34
1.81
Your
Target
Price
(F x G)
H.
30.50
27.05
27.54
28.76
20.45
Target Price: $31 (16% upside)
Catalysts:
Risks:
 Price Increases Will Help
 Litigation
 Recalls
 Bratz Case
 Input Costs
 Petroleum Based Plastics
 Slower Economic Growth
Margins
 Mid-term Reduction in
Litigation Costs
 Top Line Growth
 First Quarter 8% Growth
 Input Cost Down
 Cost cutting Programs
 Drop In Oil Prices
 Foreign Currency Exchange
 Buyer Power
DCF
Mattel, Inc.
5/20/2011
Terminal Discount Rate =
10.00%
Current Price
$
26.69
Terminal FCF Growth =
2.50%
Implied equity value/share
$
30.77
(in millions)
Upside/(Downside) to DCF
Year
Revenue
2011E
$
6,266
% Growth
% of sales
49.00%
Gross Margin
% of sales
% of Sales
23.50%
Operating Margin
Income tax expense
185
Tax Rate
195
20.0%
$
739
$
% Growth
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
211
20.0%
778
$
5.25%
846
945
$
11.71%
251
20.0%
973
$
3.00%
1,002
$
3.00%
1,063
84
1.00%
1.00%
294
20.0%
$
5.43%
19.00%
82
287
1,121
21.50%
1,592
19.00%
1.00%
20.0%
$
6.03%
21.50%
80
280
20.0%
11.50%
1,802
1,553
19.00%
1.00%
266
20.0%
11.50%
21.50%
78
1.00%
52.00%
964
1,758
1,515
19.00%
76
1.00%
243
20.0%
$
8.67%
74
1.00%
236
20.0%
18.50%
52.00%
11.50%
1,478
48.00%
4,357
940
1,715
21.50%
1,404
18.00%
72
1.00%
22.00%
1,327
18.00%
69
1.00%
22.00%
1,288
18.00%
67
1.00%
22.00%
1,251
16.75%
65
1.00%
22.00%
1,124
16.00%
63
% of Sales
23.00%
1,038
15.75%
Interest expense, net
Plus/(minus) Changes WC
23.50%
987
2.50%
48.00%
52.00%
11.50%
1,149
302
20.0%
$
2.50%
8,380
4,022
4,251
917
1,673
2021E
$
2.50%
48.00%
52.00%
11.50%
8,175
3,924
4,147
895
1,670
2020E
$
2.50%
48.00%
52.00%
11.50%
7,976
3,828
4,046
873
1,622
2019E
$
2.50%
48.00%
51.50%
11.50%
7,781
3,735
3,948
848
1,574
2018E
$
3.00%
48.50%
51.50%
11.50%
7,592
3,644
3,796
823
1,528
2017E
$
3.00%
48.50%
51.50%
11.50%
7,370
3,575
3,685
799
1,544
2016E
$
3.00%
48.50%
51.25%
11.50%
7,156
3,471
3,578
772
1,524
2015E
$
3.50%
48.75%
51.00%
11.75%
6,947
3,369
3,440
746
1,473
Operating Income
% of Sales
49.00%
51.00%
2014E
$
3,272
3,308
736
Operating, SG&A expenses
6,712
3.50%
3,178
3,196
Advertising and Promotion
2013E
$
3.50%
3,070
Gross Income
Add Depreciation/Amort
6,485
7.00%
COGS
Net Income
2012E
$
15.29%
1,177
20.0%
$
2.50%
1,207
2.50%
172
178
185
174
179
184
190
195
179
184
189
2.75%
2.75%
2.75%
2.50%
2.50%
2.50%
2.50%
2.50%
2.25%
2.25%
2.25%
(125)
(130)
(134)
(139)
(143)
(158)
(163)
(167)
(171)
(176)
(180)
-2.00%
-2.00%
-2.00%
-2.00%
-2.00%
-2.15%
-2.15%
-2.15%
-2.15%
-2.15%
-2.15%
157
162
168
174
179
184
190
175
179
184
189
2.50%
2.50%
2.50%
2.50%
2.50%
2.50%
2.50%
2.25%
2.25%
2.25%
2.25%
630
665
728
806
830
844
900
973
977
1,001
1,027
5.6%
9.6%
10.7%
3.0%
1.7%
6.6%
8.1%
0.4%
2.5%
2.5%