Consumer Staples:
Company Presentation
Charles Buseck, Jonathan Davia,
Candler Eve, Sunny Zong
Agenda
ƒ
ƒ
ƒ
ƒ
Recap of Outlook & Sector Recommendation
Stock Recommendations
Summary
Q&A
Consumer Staples Recap
ƒ SIM Consumer Staples Weight: 11.72%
ƒ S&P500 Consumer Staples Weight : 11.47%
ƒ Recommendation:
• We are currently overweight in Consumer
Staples by 25 basis points. We
recommend NO CHANGES!
• Class voted reduce the weight of Consumer
Staples by 125 basis points.
Sector Holdings
SIM – 11.72%
ƒ PepsiCo………………2.62%
ƒ Wal-Mart Stores Inc…3.03%
ƒ Philip Morris Int’l……..3.57%
ƒ Procter & Gamble……2.93%
08/4/2010
Sell Recommendations
SIM – 11.72%
SELL!
ƒ PepsiCo………………2.62%
ƒ Wal-Mart Stores Inc…3.03%
ƒ Philip Morris Int’l……..3.57%
SELL!
ƒ Procter & Gamble……2.93%
ƒ Total ………………….619 BP
ƒ Reduction in Weight…125 BP
ƒ Total for Purchase …..494 BP
Buy Recommendations
SIM – 10.47%
BUY!
ƒ CVS………...…………4.94%
ƒ Wal-Mart Stores Inc…3.03%
ƒ Procter & Gamble……2.93%
08/4/2010
CVS CAREMARK
• Company Overview
– Retail Pharmacy
– Minute Clinic
– PBM Services
• Market Capitalization
– 40.25 B
• CVS and Walgreens
made-up.
CVS - Stock History
CVS - Valuation of Multiples
Absolute
Valuation
P/Forward
E
P/S
P/EBITDA
P/CF
Current Price
Target
Upside
High
*Your
Your
#Your Target E, S,
B, Target
Target
Low Median Current Multiple etc/Share Price
29.8
10
17.6
11
17.6
3.01
1.3
0.4
0.6
0.4
0.6
72.18
15.66
5.04
8.83
5.39
8.83
6.7
25.2
7.7
13.3
8.3
13.3
3.01
30.86
45
46%
53
43
59
40
CVS Terminal Discount Rate =
Terminal FCF Growth =
9.5%
4.0%
Year
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Revenue
% Growth
98,729
103,665
5.0%
108,849
5.0%
113,747
4.5%
118,866
4.5%
124,214
4.5%
129,804
4.5%
134,996
4.0%
140,396
4.0%
146,012
4.0%
151,852
4.0%
EBT
EBT Margin
19,950
20.2%
20,733
20.0%
21,770
20.0%
22,749
20.0%
23,773
20.0%
24,843
20.0%
25,961
20.0%
26,999
20.0%
28,079
20.0%
29,202
20.0%
30,370
20.0%
Interest
Interest % of Sales
14,000
14.2%
14,513
14.0%
15,239
14.0%
15,925
14.0%
16,641
14.0%
17,390
14.0%
18,173
14.0%
18,899
14.0%
19,655
14.0%
20,442
14.0%
21,259
14.0%
Taxes
Tax Rate
2,205
37.1%
2,301
37.0%
2,416
37.0%
2,525
37.0%
2,639
37.0%
2,758
37.0%
2,882
37.0%
2,997
37.0%
3,117
37.0%
3,241
37.0%
3,371
37.0%
Net Income
% Growth
3,745
3,919
4.6%
4,114
5.0%
4,300
4.5%
4,493
4.5%
4,695
4.5%
4,907
4.5%
5,103
4.0%
5,307
4.0%
5,519
4.0%
5,740
4.0%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes
WC
% of Sales
Subtract Cap Ex
Capex % of sales
1,389
1.4%
1,451
1.4%
1,524
1.4%
1,592
1.4%
1,664
1.4%
1,739
1.4%
1,817
1.4%
1,890
1.4%
1,966
1.4%
2,044
1.4%
2,126
1.4%
(72)
-0.1%
2,548
2.6%
(76)
-0.1%
1,555
1.5%
(79)
-0.1%
1,633
1.5%
(83)
-0.1%
1,706
1.5%
(87)
-0.1%
1,783
1.5%
(91)
-0.1%
1,863
1.5%
(95)
-0.1%
1,947
1.5%
(98)
-0.1%
2,025
1.5%
(102)
-0.1%
2,106
1.5%
(106)
-0.1%
2,190
1.5%
(111)
-0.1%
2,278
1.5%
2,514
3,739
48.7%
3,926
5.0%
4,103
4.5%
4,288
4.5%
4,481
4.5%
4,682
4.5%
4,869
4.0%
5,064
4.0%
5,267
4.0%
5,477
4.0%
Free Cash Flow
% Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
27,926
41,793
69,720
5.62%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
11.9
18.6
2.5
3.6
Shares Outstanding
1,450.0
40%
60%
100%
11.4
17.8
2.4
3.5
Current Price
$
Implied equity value/share $
Upside/(Downside) to DCF
10.9
16.9
2.2
3.3
30.86
48.08
55.8%
CVS – DCF Sensitivity Analysis
Discount Rate Terminal Rate Target Price
11%
3.50%
36.34
10.50%
3.50%
38.97
10%
3.50%
42.01
9.50%
3.50%
45.55
9%
3.50%
49.74
11%
4%
37.75
10.50%
4%
40.66
10%
4%
44.06
9.50%
4%
48.08
9%
4%
52.91
Upside %
18%
26%
36%
48%
61%
22%
32%
43%
56%
71%
CVS Summary
$
CVS Summary
Recommendation: BUY 494 BP’S
Current Price: 30.86
Target Price: 45.00
Implied Upside: 46%
PepsiCo (PEP)
• Company overview:
PepsiCo, Inc. manufactures,
markets, and sells various
foods, snacks, and
carbonated and noncarbonated beverages
worldwide.
• Market capitalization of
$99.41 billion.
• 18 brands that generate $1
billion or more each in
annual retail sales
PepsiCo (PEP)
Valuation Multiples
Relative to S&P 500
Recommendation: Sell
Current SIM Weight: 262 BP’s
Holding at a loss of 5.86%
Current Price: 66.42
Target Price: 75
Implied Upside: 13%
Median
Current
P/Trailing E
1.1
0.99
P/Forward E
1.0
0.99
P/B
1.1
1.1
P/S
1.3
1.1
P/CF
1.1
1.0
PepsiCo (PEP) – Chart
PepsiCo (PEP) - Valuation of Multiples
Absolute
Valuation
P/Forward
E
P/S
P/B
P/EBITDA
P/CF
High
31.6
3.6
10.6
16.37
24.9
Current Price
Target
Upside
#Your *Your Target
Target
E, S, B,
Low Median Current Multiple
etc/Share
Your
Target
Price
13.1
1.8
4.6
8.55
10.4
73.01
75.53
79.58
70.08
76.32
20
3.1
7.1
12.81
17.7
66.42
75
13%
15.1
2.2
5
10.67
13.4
17.55
2.65
6.05
11.74
15.55
4.16
28.50
13.15
5.97
4.91
PepsiCo Terminal Discount Rate =
Year
Revenue
% Growth
EBT
EBT Margin
Interest
Interest % of Sales
Taxes
Tax Rate
Net Income
2010E
57,499
2011E
62,098
33.00%
9,085
15.8%
140
0.2%
2,100
22.8%
7,125
% Growth
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
9,315
15.0%
186
2012E
66,445
7.0%
10,365
15.6%
199
0.3%
2,185
23.0%
7,316
0.3%
2,430
23.0%
8,135
2013E
70,432
6.0%
10,987
15.6%
211
0.3%
2,576
23.0%
8,623
2014E
73,954
5.0%
11,537
15.6%
222
0.3%
2,704
23.0%
9,054
2015E
77,651
5.0%
12,114
15.6%
233
0.3%
2,840
23.0%
9,507
2016E
81,534
5.0%
12,719
15.6%
245
0.3%
2,982
23.0%
9,982
2017E
84,795
4.0%
13,228
15.6%
254
0.3%
3,101
23.0%
10,381
2018E
88,187
4.0%
13,757
15.6%
265
0.3%
3,225
23.0%
10,797
4.0%
2019E
91,715
2020E
95,383
4.0%
14,307
4.0%
14,880
15.6%
15.6%
275
286
0.3%
3,354
0.3%
3,488
23.0%
11,229
23.0%
11,678
2.7%
11.2%
6.0%
5.0%
5.0%
5.0%
4.0%
4.0%
4.0%
4.0%
1,653
2,236
2,259
2,183
2,145
2,097
2,120
2,205
2,293
2,385
2,480
2.9%
3.6%
3.4%
3.1%
2.9%
2.7%
2.6%
2.6%
2.6%
2.6%
2.6%
(72)
(78)
(83)
(88)
(93)
(97)
(102)
(106)
(110)
(115)
(119)
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
2,128
3,105
3,322
3,522
3,698
3,883
4,077
4,240
4,409
4,586
4,769
3.7%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
6,578
6,369
6,989
7,197
7,409
7,624
7,923
8,240
8,570
8,913
9,269
-3.2%
9.7%
3.0%
2.9%
2.9%
3.9%
4.0%
4.0%
4.0%
4.0%
% Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
47,908
70,724
118,633
6.34%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
14.7
18.3
10.1
12.5
Shares Outstanding
8.0%
Terminal FCF Growth =
9.5%
1,577.0
40%
60%
100%
14.3
17.8
9.4
11.6
Current Price
$
Implied equity value/share $
Upside/(Downside) to DCF
12.9
16.0
8.6
10.6
66.42
75.23
13.3%
PepsiCo (PEP) – DCF Sensitivity Analysis
Discount Rate Terminal Rate
11%
3.50%
10.50%
3.50%
10%
3.50%
9.50%
3.50%
9%
3.50%
11%
4%
10.50%
4%
10%
4%
9.50%
4%
9%
4%
Target Price
56.94
61.04
65.77
71.29
77.82
59.13
63.38
68.97
75.23
82.74
Upside %
‐14.3%
‐8.1%
‐1.0%
7.3%
17.2%
‐11.0%
‐21.2%
3.8%
13.3%
24.6%
PepsiCo (PEP) Summary
Recommendation: SEL 262 BP’S
Current Price: 66.42
Target Price: 75
Upside: 13%
Sell All the Holdings
Philip Morris International (PM)
Company Information
Risks
•
•
•
•
•
Leading international tobacco
company
Products in 160 countries
Own 7 of the top 15 brands in the
world
15.4% share of the international
market
•
•
•
•
Tightening health and marketing
regulations (Ex: Indonesia)
Litigation (over 2,000 open cases)
Intense competition
Cigarette related taxes
Environmental regulations
Philip Morris (PM) - Chart
Philip Morris (PM) Valuation of Multiples
Absolute
Valuation
High
12.9
*Your
Target E,
S, B,
etc/Share
4.09
Your
Target
Price
(F x G)
52.76
3.5
1.5
34.12
51.18
13.3
18.9
13.3
2.64
35.11
6.24
8.82
8.60
8.82
5.80
51.16
8.8
12.9
12.6
12.9
3.96
51.08
Low
Median
Current
#Your
Target
Multiple
P/Forward E 16.1
11.0
12.9
13.0
P/S
3.5
1.1
1.5
P/B
19.9
7.2
P/EBITDA
11.79
P/CF
139.8
Current Price
Target
Upside
52.97
52.76
‐1%
Terminal FCF Growth =
PM Terminal Discount Rate = 9.75%
Year
2011E
2.0%
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
Revenue
% Growth
66,341
68,331
2.8%
70,381
2.8%
72,141
2.5%
73,944
2.5%
75,608
2.3%
77,120
2.0%
78,663
2.0%
80,236
2.0%
81,841
2.0%
83,477
2.0%
Operating Income
Operating Margin
11,004
16.6%
11,574
16.9%
11,923
16.9%
12,221
16.9%
12,526
16.9%
12,808
16.9%
13,064
16.9%
13,325
16.9%
13,592
16.9%
13,864
16.9%
14,141
16.9%
315
0.5%
315
0.5%
315
0.4%
323
0.4%
331
0.4%
338
0.4%
345
0.4%
352
0.4%
359
0.4%
366
0.4%
374
0.4%
Taxes
Tax Rate
2,468
23.1%
2,468
21.9%
2,468
21.3%
2,499
21.0%
2,561
21.0%
2,619
21.0%
2,671
21.0%
2,724
21.0%
2,779
21.0%
2,834
21.0%
2,891
21.0%
Net Income
% Growth
8,220
8,791
6.9%
9,139
4.0%
10,045
9.9%
10,296
2.5%
10,528
2.3%
10,738
2.0%
10,953
2.0%
11,172
2.0%
11,396
2.0%
11,623
2.0%
Interest and Other
Interest % of Sales
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
853
1.3%
(412)
-0.6%
943
1.4%
888
1.3%
(393)
-0.6%
854
1.3%
915
1.3%
(405)
-0.6%
880
1.3%
938
1.3%
(577)
-0.8%
902
1.3%
961
1.3%
(592)
-0.8%
924
1.3%
983
1.3%
(605)
-0.8%
945
1.3%
1,003
1.3%
(617)
-0.8%
964
1.3%
1,023
1.3%
(629)
-0.8%
983
1.3%
1,043
1.3%
(642)
-0.8%
1,003
1.3%
1,064
1.3%
(655)
-0.8%
1,023
1.3%
1,085
1.3%
(668)
-0.8%
1,043
1.3%
Free Cash Flow
% Growth
7,718
8,432
9.3%
8,770
4.0%
9,504
8.4%
9,742
2.5%
9,961
2.3%
10,160
2.0%
10,363
2.0%
10,570
2.0%
10,782
2.0%
10,997
2.0%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
60,366
57,088
117,454
7.67%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
12.2
14.3
9.8
11.2
51%
49%
100%
11.4
13.4
9.3
10.6
11.0
12.9
9.0
10.3
Current Price
$ 52.97
Implied equity value/share
$ 61.82
Upside/(Downside) to DCF
16.7%
Philip Morris (PM) – DCF Sensitivity Analysis
Discount
Rate
Terminal Rate
Target Price
Upside
11%
2%
$53.15
0.3%
10.5%
2%
$56.31
6.3%
10%
2%
$59.87
13.0%
9.75%
2%
$61.82
16.7%
11%
2.50%
$54.63
3.1%
10.50%
2.50%
$58.04
9.6%
10%
2.50%
$61.91
16.9%
9.75%
2.50%
$64.05
20.9%
Philip Morris (PM) Summary
Recommendation: SELL 337 BP’s
Current Price: $52.97
Sell All the Holdings
Summary
We are going all in on CVS!
•Sell Pepsi
•Sell Phillip Morris
•Buy CVS