Industrials
Stock Recommendation
Bernard Hosanna
Shawana Jackson
Brett Kinkopf
Jonathan Kocon
Chien-Ying Lee
Agenda





Recap of Sector
Industrial Holdings
Stock Recommendations
Summary
Q&A
Sector Recap
 SIM Industrials Weight: 12.76%
S&P500 Industrials Weight : 10.28%
Overweight by 248bps
 Class agreed to increase 15bps to overweight the sector by
200bps
 Positive sector developments
•
•
•
•
Improving global growth
Unemployment rate improving
Rising GDP data
Favorable industrial spending
Industrial Holdings
Current Holdings
Emerson
General Dynamics
Oshkosh
UTI Worldwide
First Solar
Total
=1.23%
=3.57%
=4.01%
=2.38%
=1.57%
=12.76%
Proposed Holdings
Emerson
General Dynamics
Oshkosh
UTI Worldwide
Bucyrus
Total
=1.23%
=3.00%
=3.50%
=2.38%
=2.17%
=12.28%
Sell 57 bps of General Dynamics
Sell 51 bps of Oshkosh
Sell 157 bps of First Solar
Buy 217 bps of Bucyrus
First Solar (FSLR) Overview
• Produces Cadmium Telluride Solar Panels and provides solar energy
solution services
• Is attempting to attain “grid parity” or a ~$0.70/watt price of electricity
• Have claimed they hit $1/watt… Much lower than the $4/watt for most
solar units
• Considered a growth stock
– Has paid no dividends and has seen massive capital gains since its IPO
FSLR in Relation to XLI
FSLR Valuation
Absolute
Valuation
High
Low
Median
Current
#Your Target
Multiple
*Your Target
E, S, B,
etc/Share
Your Target
Price
P/Forward E
P/S
P/B
P/EBITDA
P/CF
218.1
84.4
97.5
633.24
973.7
16.0
0
3.4
10.72
11.6
44.7
11.2
9.1
81.33
87.7
17.7
4.5
3.5
11.18
11.9
20
7
5
20
20
6.1
24
30.8
9.6
9.0
122
168
154
192
180
FSLR DCF and Target Price
• Terminal DCR of 12%
• Terminal FCF growth of 4.5%
• Target price of $148.74
• Current price of $108.62
• Upside of 36.9%!!!
• So why sell?
Everything Looks OK- So Why
Sell?
• A considerable portion of FSLR’s revenue is based on purchases
backed by international governmental subsidies
• Recently the German government announced that it would decrease
its subsidies for photovoltaic panels
• On February 18th, FSLR management announced it would widen its
EPS guidance to $6.05 - $6.85
• So the DCF may still look good, but these forecasts are much less
certain now
• In other words- overnight the volatility of this stock increased
greatly.
• This company is beholden to the whims of foreign governments
Bucyrus International
• Products:
–
–
–
–
Draglines
Drills
Shovels & excavators
Mining trucks
• Demand Drivers:
• Designs, manufactures, and markets
mining equipment
• Supplies aftermarket parts and services
for mining equipment
–
–
–
–
–
Coal
Copper
Oil sands
Iron ore
Other minerals
Bucyrus International
NASDAQ: BUCY
Stock Price: $65.82
Market Cap: $4.80b
Revenue: $2.65b
Diluted EPS: $4.12
Shares: 74.46m
Dividend Yield: 0.20%
•
•
•
•
Risks
Commodities market
Mining activity
Global economy
Foreign currency
GDP & Bucyrus
Crude oil spot price & Bucyrus
International Growth
•
•
Largest surface markets:
– Australia
– Canada
– China
– India
– South Africa
– South America
– US
Expected growth in Russian
and Indonesian markets
•
•
•
Largest underground markets:
– Australia
– Germany
– China
– US
Germany expected to decline
as a market
Expected growth in Russian,
Indian, and Eastern European
markets
70% of sales outside of U.S.
Bucyrus’s Financials
Bucyrus’s Financials
Bucyrus’s Key Financial Stats
• Low current to D/E ratio at 0.37 compared to industry at 2.63
• Low PEG ratio at 1.24 compared to industry at 2.02
• 5-year Historical EPS Growth Rate 86.5%
• Low P/E ratio at 15.33 compared to industry at 27.16
BUCY’s Valuations
Relative to
S&P 500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
2.8
1.6
14.8
2.2
2.6
Low
0.37
0.34
0.7
0.5
0.4
Median
1.5
1.1
1.7
1.3
1.9
Current
0.88
1.1
1.7
1.5
1.2
Relative to
Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
3.5
2.1
11.7
2.8
3.5
Low
0.49
0.29
0.7
1
0.6
Median
1.8
1.4
1.2
2.1
2.2
Current
0.52
0.7
0.9
1.5
1
BUCY’s Valuations
Absolute
Valuation
Current
Target
Multiple
Target
E,S,B
Price
Target
High
Low
Median
P/Forward E
26.1
4
17.6
15.7
18
4.93
88.74
P/S
3
0.4
1.8
1.8
1.8
45.31
81.56
P/B
49.1
1
4.9
3.8
4.9
16.83
82.47
P/EBITDA
23.53
2.09
14.49
8.85
14
7.2
100.8
P/CF
28.2
3.2
20.1
12.7
20
4.98
99.6
Average Price Target = $90.63 = 38% upside
Joy Global’s Valuation
Absolute
Valuation
High
Low
Median
Current
P/Forward E
P/S
P/B
P/EBITDA
P/CF
36.7
3.8
12.0
27.7
40.8
5.0
0.3
0.7
2.9
3.3
19.6
1.4
5.3
12.3
16.4
17.6
1.6
8.0
7.6
11.4
Your Target Your
Multiple Target E,
S, B,
19.6
1.4
5.3
12.3
16.4
3.1
29.3
7.9
7.6
4.6
Your
Target
Price
$60.8
$41.0
$41.9
$93.5
$75.4
Average Price Target = $62.52 = 11% upside
DCF model & Target Price
Current Share Price : $65.82
Implied equity value/share : $81.5
Upside/(Downside) to DCF : 23.8%
Terminal Discount Rate:10.5%
Terminal FCF Growth: 5.0%
=(50% ave multiples + 50% DCF)
=(0.5*$90.63 + 0.5*$81.50)
=$86
(30% upside)
What the charts suggests
Industry Charts
BUCY vs JOYG Charts over 5 yrs
Summary
First Solar
• Uncertain outlook
• Highly volatile
• Germans reduces subsidies
Bucyrus
• Rising global growth driven by
emerging markets
• Improving Asian urbanization
should drive commodity prices
higher
• Technical charts bullish
Proposed Holdings
Emerson
General Dynamics
Oshkosh
UTI Worldwide
Bucyrus
Total
=1.23%
=3.00%
=3.50%
=2.38%
=2.17%
=12.28%
Sell 57 bps of General Dynamics
Sell 51 bps of Oshkosh
Sell 157 bps of First Solar
Buy 217 bps of Bucyrus
BUCY Sensitivity Analysis
FCF Growth
Discount Rate
9.5
10
4
4.5
5
5.5
6
10.5
11
11.5
88.06
79.08
71.53
65.10
59.56
95.09
84.70
76.10
68.86
62.69
103.67
91.45
81.50
73.24
66.30
114.41
99.69
87.97
78.42
70.51
128.21
110.00
95.88
84.64
75.48
Emerson Electric
• Emerson is a global diversified technology company
• The company engages in designing and supplying product
technology, as well as delivering engineering services and
solutions to various industrial, commercial, and consumer
markets worldwide
Current Share Price : $48.49
Implied equity value/share : $54.56
Upside/(Downside) to DCF : 12.5%
Terminal Discount Rate:10.5%
Terminal FCF Growth: 5.0%
Oshkosh
Industry: Trucks and Other Vehicles
Market Cap: $3.3 B
Target Price: $44
Current Price: $37.25
Upside Potential: 18%
Uti Worldwide
High
Low
Median
Current
Target
Multiple
Target
/ Share
Target
Price
P/E Forward
32.90
10.10
19.90
20.40
19.90
0.56
11.14
P/S
1.20
0.20
0.60
0.40
0.60
36
21.60
P/B
6.40
1.40
3.20
2.00
3.20
7.88
25.60
P/EBITD
A
25.29
4.98
13.97
11.32
13.97
1.39
19.44
P/CF
34.70
6.60
16.60
13.00
16.60
1.21
20.11
DCF:
– Current Price: $15
– Implied/Equity Value: $17
– Upside/(Downside): 10.3%
Discount rate: 10%
Terminal growth rate: 3.5%
Average Target Price: $18.50
Multiples
Target Price:
$20
General Dynamics
Multiple Valuation
Recommendations
Target Price: 0.5* Ave of multiple valuation price + 0.5* DCF
High Low
Absolute
Valuation
P/Trailing 19.7 6.5
E Current Price
(04/03/2010)
1.8
0.6
P/Forward
E Implied equity
P/B value/share
4.8
1.6
P/S Upside/( Downside)
13.42 3.93
P/CF
18.2 5.5
Median Current Target Target
DCF
Low
High
Target
Multiple value/share
Price
15.3
10.2
12.7
6.48
72.91
72.91
72.91
72.91
1.2
0.8
1.0
79.431
81.95
77.51
86.26
81.73
3.2
2.2
2.7
30.386
9.66
10.765
12.40%6.216.31%7.2 18.31%
12.10%
13.9
8.8
11.35
7.6
Price Range: $77.51-- $86.26
HOLD
Valuation
Opinion
82.3
79.431
82.042
77.508
86.26
General Dynamics--DCF
Terminal Discount Rate =11.5%
Terminal FCF Growth =4.0%
Year
Revenue
% Growth
2009E
31981
2010E 2011E
30737 33899
-3.89% 10.29%
2012E
34916
3%
2013E
35964
3%
2014E
36683
2%
2015E
37417
2%
2016E
38165
2%
2017E
38928
2%
2018E
39707
2%
2019E
40501
2%
Operating Income
Operating Margin
3628
11.34%
3802
12.37%
4359
12.86%
4365
12.50%
4495
12.50%
4585
12.50%
4677
12.50%
4771
12.50%
4866
12.50%
4963
12.50%
5063
12.50%
Interest and Other
Interest % of
Sales
Taxes
Tax Rate
Net Income
% Growth
CFO
% of Sales
Subtract Capital
Expense
% of Sales
Free Cash Flow
% of Growth
-141
-133
-147
-152
-156
-159
-162
-166
-169
-172
-176
-0.441% -0.434% -0.435% -0.434% -0.434% -0.434% -0.434% -0.434% -0.434% -0.434% -0.434%
1102
1159
1331
1331
1371
1399
1427
1455
1484
1514
1544
31.60% 31.60% 31.60% 31.60% 31.60% 31.60% 31.60% 31.60% 31.60% 31.60% 31.60%
2374
2509
2880
2882
2968
3027
3088
3150
3213
3277
3342
5.69% 14.80%
0.04%
3.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
3011
2920
3220
3317
3417
3485
3555
3626
3698
3772
3848
9.41%
9.50%
9.50%
9.50%
9.50%
9.50%
9.50%
9.50%
9.50%
9.50%
9.50%
475
1.49%
2536
461
1.50%
2459
-3.02%
505
1.49%
2715
10.43%
520
1.49%
2797
3.00%
532
1.48%
2884
3.13%
543
1.48%
2942
2.00%
550
1.47%
3005
2.13%
561
1.47%
3065
2.00%
568
1.46%
3130
2.13%
580
1.46%
3192
2.00%
587
1.45%
3260
2.13%