Industrials Sector
Robyn Jenkins, Matt Hacker, Jeff Lakarosky, Xu Han
Industrial Sector
• Overview
• Business Analysis
• Economic Analysis
• Financial Analysis
• Valuation Analysis
• Recommendations
Industrials Sector Overview
• The Sector has a 1.34 T market capitalization
• It is the 4th largest sector in the S&P 500
• Accounts for 11.15% of the S&P 500, Overweight 0.43%
SIM class current holdings
Industrials Returns
• The sector is up 33% over the last 12 months and 9.6% over
the S&P
• The sector is up 5.8% YTD and 1.6% over the S&P 500
Industrial Sector Industries
• There are 22 Industries in the Sector
• Aerospace/Defense, Airfreight & Logistics, Airlines,
Building Products, Commercial Printing, Construction &
Engineering, Diversifies Support Services, Electrical
Components, Heavy Electrical Equipment, Industrial
Conglomerates, Machinery Construction/Farm,
Machinery Industrial, Marine, Railroads, Research &
Consulting, Security & Alarm Services, Services
Diversifies/Commercial, Services Employment, Services
Environmental, Services Office Support, Trade Cos and
Distribution, Trucking
Industrial Sector Product Segmentation
Industry
Aerospace/Defense - Major Diversified
Div. Yield %
Price to
Book
Net Profit Margin
(mrq)
Price To
Free Cash
Flow (mrq)
0
2.544
-13.09
-21.1
-929.2
Market Cap P/E ROE %
6909.58B 12.8
Aerospace/Defense Products & Services
200.50B
13.6
20.3
2.065
-29.78
6.6
22.4
Cement
30.12B
33.4
2.8
1.172
4.31
2.1
6.7
22250.61B 21.4
11.5
1.625
11.1
6.3
18.4
Diversified Machinery
Farm & Construction Machinery
409.31B
56.3
7.7
1.276
6.96
2.5
17.2
General Building Materials
9417.70B
0
0
1.916
4.6
-0.1
40.7
General Contractors
5397.07B 30.3
4.5
0.208
3.41
1.8
-39.9
Heavy Construction
519.89B
16.7
14
0.437
3
3.5
60.3
Industrial Electrical Equipment
139.53B
27.6
12.8
1.543
7.48
6.3
28.3
Industrial Equipment & Components
83.00B
27.1
12.6
1.871
-172.15
6.7
60.5
Lumber, Wood Production
43.13B
71.2
3.1
1.185
2.74
2.2
53.4
Machine Tools & Accessories
42.10B
42.1
4.4
1.68
9.82
3.3
21.3
Manufactured Housing
489.89M
0
-23.7
3.085
4.3
-15
-25.2
Metal Fabrication
146.92B
0
-0.4
0.308
5.46
-0.2
29.8
Pollution & Treatment Controls
71.24B
24.1
13.1
0.737
3.56
7.6
-142.8
Residential Construction
649.26B
0
0
0.771
1.54
-5.4
5.3
Small Tools & Accessories
9.87B
28.3
8.1
1.77
3.35
4.6
13.5
Textile Industrial
994.79B
0
-0.7
0.732
3.31
-0.4
10.4
Waste Management
265.80B
24.7
10.1
2.573
-18.37
6.9
117.6
---From Google Finance
Metal Fabrication
Machine Tools & Accessories
Residential Construction
0.31%
0.09%
1.36%
Manufactured Housing
Lumber, Wood
Small Tools &
0.00%
Production
Accessories
0.09% Industrial
0.02%
Equipment
&
Industrial Electrical Equipment
Components
0.29%
0.17%
Textile Industrial
2.09%
Waste Management
0.56%
Pollution & Treatment Controls
0.15%
Heavy Construction
1.09%
General Contractors
11.34%
Aerospace/Defense Major Diversified
14.52%
General Building Materials
19.79%
Diversified Machinery
46.76%
Farm & Construction
Machinery
0.86%
Aerospace/Defense Products &
Services
0.42%
Cement
0.06%
Largest Industrial Companies
• GE – 229.1 B
• Siemens – 117.3 B
• United Technologies – 78.7 B
• UPS - 74 B
• 3M – 65.7 B
• Caterpillar – 65.5 B
• ABB - 55 B
• Boeing - 53 B
Industrials Business Analysis
End Market Business Life Cycle
*KeyBanc Capital Markets, Industrial Distribution & Logistics Quarterly (Q3)
Economic Analysis
5 Forces Analysis
Substitutes


Few substitutes for specific
products
Many substitutes for commodity
products
Suppliers


Buyers

Few large raw material
suppliers
Few substitutes for raw
materials
Industry
Competition

New Entrants




High up front capital costs
Long-term relationships with
suppliers and buyers
Proprietary technology
Distribution and Dealer Networks
Large corporations and
governments have purchasing
power
Fragmented buyers for some
products
Input Analysis
• Raw material prices have been increasing
• Copper near all time high at $4.56 /lb
1-year Aluminum Prices
*LME Spot Prices
1-year Steel Prices
Economic Analysis
1 . Real GDP and Industrials
Industrials
Real GPD
Economic Analysis
2. Capital Spending and Industrials
Industrials
• Industrial are highly
correlated to Capital
Spending when
Considering a 5
month lead time.
Capital Spending
Economic Analysis
3. Capital Orders and Industrials
Industrials
• Industrial are highly
correlated to Capital
Orders when
Considering a 1
month lead time.
Capital Orders
Economic Analysis
Industrials
4.Capacity Utilization and Industrials
10 year
5 year
Cap Util
Economic Analysis
Industrials
5. Government Spending and Industrials
Def Spend
Economic Analysis
Industrials
6. Oil Price and Industrials
Oil Price
Financial Analysis
Sector ROE
Absolute
Relative to S&P
Sector EPS
Sector EPS Growth
Sector Net Profit Margin
Absolute
Relative to S&P
Sector Sales/Share
Sector Cash Flow/Share
Industries ROE
Aerospace &
Defense
Machinery
Industrial
Conglomerates
Industries Net Profit Margins
Aerospace
& Defense
Machinery
Industrial
Conglomerates
Companies in Sector
GE
Siemens
Caterpillar
United
Technologies
UPS
3M
Boeing
Flowserve
General
Dynamics
Textron
Cooper
Industries
Current
ROE %
10.5
13.9
27.1
Median
ROE %
17.7
12.1
27.6
Current Net Profit
Margin %
8.2
5.6
6.2
Median Net Profit
Margin %
11.2
3.2
6.3
22.1
45.6
28.6
133.1
23.4
25.2
25.1
33.1
27.9
10.8
8.4
7.1
15.4
5.1
10.7
7.7
8.3
14.9
4.4
3
20
7.6
20
10.2
7.9
2.1
7.6
3
17.1
15.4
10.4
8.3
Valuation Analysis
Sector Overview
Sector Overview Relative to S&P
500
Valuation – Industrials Sector
01/01/2011
11/01/2010
09/01/2010
07/01/2010
05/01/2010
03/01/2010
01/01/2010
11/01/2009
09/01/2009
07/01/2009
05/01/2009
03/01/2009
01/01/2009
11/01/2008
09/01/2008
07/01/2008
05/01/2008
03/01/2008
01/01/2008
11/01/2007
09/01/2007
07/01/2007
05/01/2007
03/01/2007
01/01/2007
11/01/2006
09/01/2006
07/01/2006
05/01/2006
03/01/2006
01/01/2006
P/E Analysis
25.0000
20.0000
15.0000
10.0000
5.0000
0.0000
01/01/2011
11/01/2010
09/01/2010
07/01/2010
05/01/2010
03/01/2010
01/01/2010
11/01/2009
09/01/2009
07/01/2009
05/01/2009
03/01/2009
01/01/2009
11/01/2008
09/01/2008
07/01/2008
05/01/2008
03/01/2008
01/01/2008
11/01/2007
09/01/2007
07/01/2007
05/01/2007
03/01/2007
01/01/2007
11/01/2006
09/01/2006
07/01/2006
05/01/2006
03/01/2006
01/01/2006
P/S Analysis
1.8000
1.6000
1.4000
1.2000
1.0000
0.8000
0.6000
0.4000
0.2000
0.0000
0.0000
01/01/20…
11/01/20…
09/01/20…
07/01/20…
05/01/20…
03/01/20…
01/01/20…
11/01/20…
09/01/20…
07/01/20…
05/01/20…
03/01/20…
01/01/20…
11/01/20…
09/01/20…
07/01/20…
05/01/20…
03/01/20…
01/01/20…
11/01/20…
09/01/20…
07/01/20…
05/01/20…
03/01/20…
01/01/20…
11/01/20…
09/01/20…
07/01/20…
05/01/20…
03/01/20…
01/01/20…
P/B Analysis
4.0000
3.5000
3.0000
2.5000
2.0000
1.5000
1.0000
0.5000
Sector Analysis
Absolute
Basis
P/E
High
Low
Median
Current
25.9
9.2
16.8
16.6
P/B
4.7
1.4
3.2
3.1
P/S
1.9
.6
1.4
1.4
P/CF
16.4
6.0
11.4
12.0
Relative to
SP500
P/E
High
Low
Median
Current
1.2
.82
1.1
1.1
P/B
1.4
.9
1.1
1.3
P/S
1.1
.8
1.0
1.0
P/CF
1.2
.8
1.1
1.2
Individual Stock Analysis
Relative to
S&P 500
P/E
Flowserve
Textron
1.6
Cooper
Industries
1.1
General
Dynamic
.74
1.2
P/B
1.5
1.1
1.5
.9
P/S
1.3
.5
1.5
.7
P/CF
1.3
1.2
1.5
.9
• The numbers above are the current ratios for each of the stocks relative
to the S&P 500.
01/01/2011
11/01/2010
09/01/2010
07/01/2010
05/01/2010
03/01/2010
01/01/2010
11/01/2009
09/01/2009
07/01/2009
05/01/2009
03/01/2009
01/01/2009
11/01/2008
09/01/2008
07/01/2008
05/01/2008
03/01/2008
01/01/2008
11/01/2007
09/01/2007
07/01/2007
05/01/2007
03/01/2007
01/01/2007
11/01/2006
09/01/2006
07/01/2006
05/01/2006
03/01/2006
01/01/2006
Aerospace/Defense
25.0000
20.0000
15.0000
10.0000
5.0000
0.0000
01/01/2011
11/01/2010
09/01/2010
07/01/2010
05/01/2010
03/01/2010
01/01/2010
11/01/2009
09/01/2009
07/01/2009
05/01/2009
03/01/2009
01/01/2009
11/01/2008
09/01/2008
07/01/2008
05/01/2008
03/01/2008
01/01/2008
11/01/2007
09/01/2007
07/01/2007
05/01/2007
03/01/2007
01/01/2007
11/01/2006
09/01/2006
07/01/2006
05/01/2006
03/01/2006
01/01/2006
Electrical Components
25.0000
20.0000
15.0000
10.0000
5.0000
0.0000
01/01/2011
11/01/2010
09/01/2010
07/01/2010
05/01/2010
03/01/2010
01/01/2010
11/01/2009
09/01/2009
07/01/2009
05/01/2009
03/01/2009
01/01/2009
11/01/2008
09/01/2008
07/01/2008
05/01/2008
03/01/2008
01/01/2008
11/01/2007
09/01/2007
07/01/2007
05/01/2007
03/01/2007
01/01/2007
11/01/2006
09/01/2006
07/01/2006
05/01/2006
03/01/2006
01/01/2006
Industrial Conglomerates
25.0000
20.0000
15.0000
10.0000
5.0000
0.0000
01/01/2011
11/01/2010
09/01/2010
07/01/2010
05/01/2010
03/01/2010
01/01/2010
11/01/2009
09/01/2009
07/01/2009
05/01/2009
03/01/2009
01/01/2009
11/01/2008
09/01/2008
07/01/2008
05/01/2008
03/01/2008
01/01/2008
11/01/2007
09/01/2007
07/01/2007
05/01/2007
03/01/2007
01/01/2007
11/01/2006
09/01/2006
07/01/2006
05/01/2006
03/01/2006
01/01/2006
Machinery Industrials
30.0000
25.0000
20.0000
15.0000
10.0000
5.0000
0.0000
Recommendations
• We recommend that we HOLD the position at the current level
• Positives
• Industrial revenues will likely increase in the near future due to
increased capital spending
• The sector is at the beginning of a growth cycle
• Negatives
• The sector has experienced above average gains over the last 2 to 3
quarters
• Valuations are currently at average or slightly above, revenue increases
have already been priced in.
• Risks
• Capital spending does not increase as expected
• Increased in input prices
• Cuts in government spending (company specific)
Questions?