Consumer Discretionary Sector
Stocks
August 18, 2010
Joseph Albrecht, Holly Asel, Josh Baker,
Adam Burns, and Vanessa Tambayong
BUS FIN 724/824
Overview
•
•
•
•
•
•
•
•
Sector Overview
Comcast Analysis
Best Buy Analysis
DeVry Analysis
Ross Stores Analysis
TJX Analysis
Carnival Analysis
Final Recommendations
Sector Review
• Highly Cyclical
• Recommended to Add 50-100 bps
• Voted to maintain Weight
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Relative to SP500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
44.0
84.8
11.5
1.1
23.9
High
1.8
4.0
2.3
0.6
1.6
Low
7.7
8.2
1.7
0.2
5.1
Low
0.63
0.66
0.8
0.2
0.7
Median
21.5
17.8
3.7
0.6
12.8
Median
1.1
1.0
1.3
0.4
1.1
Current
10.5
9.3
2.0
0.3
6.5
Current
0.70
0.68
1.0
0.2
0.7
Recommendation
BUY
253 BP
188 BP
SELL
253 BP
188 BP
HOLD
Current SIM Weights (as of 7/30/2010)
Current Index
Weight
Consumer Discretionary
10.20%
Sector
Current SIM
Weight
10.21%
Consumer Staples
11.41%
11.66%
Energy
10.87%
9.50%
Financials
16.45%
12.23%
Health Care
11.37%
12.78%
Industrials
10.64%
12.99%
Information Technology
18.79%
17.44%
Materials
3.55%
1.64%
Telecommunications
3.03%
3.93%
Utilities
3.69%
2.35%
Cash
0.00%
5.21%
Dividend Receivables
0.00%
0.06%
Comcast
CMCSA – Current Price $17.87
Expected Return: 14.9%
Recommendation : HOLD
Current weight: 3.24%
Comcast: Absolute Valuation
Absolute
Valuation
P/Forward E
High
Low
Median
Current
Target
Multiple
Target
/Share
Target Price
435.4
12.6
32.9
14.5
17.0
1.26
21.42
P/S
5.1
1.2
3.3
1.5
1.6
13.0
20.80
P/B
3.1
0.9
1.6
1.2
1.3
15.84
20.59
19.46
2.98
7.01
3.92
4.5
4.85
21.83
25.5
4.2
12.6
5.3
6.0
3.59
21.54
P/EBITDA
P/CF
Best Buy
BBY – Current Price $33.23
Expected Return: 63%
Recommendation : HOLD
Current weight: 2.56%
Best Buy: Absolute Valuations
Absolute
Valuation
P/Forward E
High
Low
Median
Current
Target
Target/Share
Multiple
Target Price
41.3
6.6
19.3
11.2
19.3
3.44
$
66.39
P/S
1.2
0.2
0.7
0.3
0.7
127
$
88.90
P/B
13.3
1.9
4.8
2.3
4.8
14.35
$
68.87
21.86
3.22
9.22
5.3
9.22
6.23
$
57.41
33.5
4.4
13.5
6.5
13.5
5.08
$
68.54
P/EBITDA
P/CF
DeVry, Inc.
DV – Current Price $42.71
Expected Return: 5.4%
Recommendation : SELL 188 BPs
Current weight: 1.88%
After Sale: 0.00%
DeVry, Inc. – Reasons for Selling
•
•
-
Congressional Investigation
Title IV
Predatory student recruiting
Targeting lower income students
Using proceeds on marketing and compensation,
and not education
• 71% of DV revenue comes from Title IV
DeVry, Inc. – Reasons for Selling
Cont.
“Until recently, I thought that there would never again be
an opportunity to be involved with an industry as socially
destructive and morally bankrupt as the subprime
mortgage industry. I was wrong. The For-Profit
Education Industry has proven equal to the task.”
-Steve Eisman, Portfolio Manager of FrontPoint Financial Services Fund, Subprime goes
to College (NY Post – June 6, 2010)
DeVry, Inc. - Recap
• SELL 188 BPs
• Reallocate DV basis points to more stable securities
within Consumer Discretionary Sector.
Ross Stores, Inc.
ROST – Current Price $49.02
Expected Return: 18%
Recommendation : SELL 253 BPs
Current weight: 2.53%
After Sale: 0.00%
ROST – Recap
• SELL 253 BPs
• Reallocate DV basis points to more stable securities
within Consumer Discretionary Sector.
TJX Companies
TJX – Current Price $40.90
Expected Return: 37%
Recommendation : BUY 253 BPs
Current weight: Not Currently Held
After Purchase: 2.53%
TJX - Stores
• TJ Maxx
• Marshalls
• Homegoods
• A.J. Wright
• Winners (Canada)
• TKX (Europe)
• Homesense (Canada and Europe)
*US: 48 states
*Canada: All 10 Provinces
*Europe: U.K., Ireland, Germany and Poland
TXJ vs. ROST
Market Cap
Enterprise Value
52 Week High
52 Week Low
Average Volume (3mth)
P/S
Current Ratio
Forward P/E
TJX
ROST
16.69B
15.52B
48.50
33.80
5.6M
.81
1.69
11.32
5.99B
5.31B
58.93
42.30
2.2M
.82
1.51
10.97
TJX – Risks
•
•
•
•
Consumer spending
High unemployment
Importing merchandise from abroad
Fluctuations in foreign currency exchange
rates may lead to lower revenues and
earnings
TJX - Catalysts
• TJX has steady increasing revenues, earnings and cash
flows
• TJX can adjust its inventories based economic situations
and needs
• Opportunistic buying and inventory management
• Economies of scale
• Global presence
• Consumers can only tighten their belts for so long. They
will eventually splurge on “little” luxuries
TJX - Correlations
• Consumer Confidence: -.60
• Consumer Spending on Clothing and
Shoes: -.11
• Disposable Income: -.36
TJX - Valuation
Target Price = $54.89
TJX - Recap
37% Upside
• BUY 253 BPs
Carnival Corporation
CCL – Current Price $32.51
Expected Return: 76%
Recommendation : BUY 188 BPs
Current weight: Not Currently Held
After Purchase: 1.88%
Carnival Corporation – Background
• The world’s largest cruise ship operator
• Consists of 11 different brands, composed of 96
ships with 10 new ships being built
Mission statement:
Our mission is to deliver exceptional vacation
experiences through the world's best-known
cruise brands that cater to a variety of different
lifestyles and budgets, all at an outstanding
value unrivaled on land or at sea.
Carnival – Catalysts
•
•
•
•
•
Value vacation
High End Vacation
Pent-up demand
Cost of fuel has recently stabilized
Revenues have recently increased in the
last 6 months ended 5/31/10 from $5,812
in 2009 to $6,290 in 2010
Carnival – Risks
•
•
•
•
Consumer confidence
Unemployment
Future price of fuel
RCL: reported better than expected 2nd quarter
earnings
• Lack of consumer demand + fleet expansion??
Direct Competitor Comparison
Market Cap
Employees
Revenue
Gross Margin
EBITDA
Operating Margin
Net Income
EPS
P/E
P/S
CCL
RCL
25.65B
80,600
13.64B
37.21%
3.47B
15.36%
1.69B
2.12
15.35
1.89
5.53B
59,600
6.30B
32.44%
1.24B
10.02%
381.74M
1.76
14.61
.89
Carnival – Valuation Multiples
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
1.1
1.4
1.2
2.8
1.4
.7
.66
.5
1.4
.7
.84
.84
.8
2.1
1
.74
.69
.6
1.4
.7
High
Low
Median
Current
1.5
1.2
1
3.8
1.9
.43
.48
.4
1.3
.5
.93
.98
.7
2.4
1.1
1
.93
.7
1.3
.8
Carnival – Absolute Valuation
Absolute
Variation
High
P/Forward E
Low
Median
Current
Target
Multiple
Target per Share
Target Price
28.3
6.3
17.2
14.9
17.2
2.28
$
39.22
P/S
6
1
3.4
1.5
3.4
17.00
$
57.80
P/B
3.3
0.7
2.2
1.5
2.2
21.64
$
47.61
P/EBITDA
17.5
3.5
10.8
6.5
10.8
4.99
$
53.93
P/CF
20.9
4.1
12
7.5
12
4.33
$
51.94
• 54% Upside
Carnival - Recap
• 76% Upside
• BUY 188 BPs
Final Recommendations
• Stay at S&P 500 levels
• Sell
– 253 ROST
– 188 DeVry
• Buy
– 253 TJX
– 188 CCL
DCFs
• CCL DCF
• CMCSA DCF
• BBY DCF
DV DCF
ROST DCF
TJX DCF