Finance 724/824
Winter 2010
Information Technology Sector
Stock
Recommendation
Team Members:
Hanh Bui
Vamsi Namburi
Hang Nguyen
Tejaswi Ponnada
Jonathan Schick
Agenda
• Recap of Sector Presentation
• Stock Recommendation:
– Sell
– Buy
• Q&A
Recap
Recommendation
Sell
Buy
Q&A
Weight
Recap
Recommendation
Sell
Buy
Q&A
Recap
• As of 02/28/2010, IT is overweight by 90bp
– S&P500: 18.77 %
– SIM: 19.67 %
• Class voted: to increase 26bp
Recap
Recommendation
Sell
Buy
Q&A
Recommendation
•
•
•
•
Sell 430bp of IBM
Buy 350bp of RIMM
Buy 50bp of HPQ
Buy 56bp of INTC
Recap
Recommendation
Sell
Buy
Q&A
Current and Proposed Weights
Recap
Recommendation
Sell
Buy
Q&A
Research In Motion
Life On Blackberry
Recap
Recommendation
Sell
Buy
Q&A
Background
• Canadian company founded in 1984
• Leading designer, manufacturer and marketer of
innovative wireless solutions for the worldwide global
communications market.
• Primary revenue driver: BlackBerry wireless solution
• Traditional B2B focus: sales to carriers and services
revenues from infrastructure access fee paid by
carrier/distributor.
Recap
Recommendation
Sell
Buy
Q&A
Competitive Advantage
• International expansion
• Increasing carrier
customer base in NAM
with 63% revenues
generated in United
States.
• Expect sales to increase
in Europe and Asia
(China).
• Device portfolio
• Segmented by multiple
price points and feature
sets versus Apple’s
premium web/application
experience offered at a
high-end price point.
Recap
Recommendation
Sell
Buy
Q&A
Competitive Advantage
• Innovation
– BlackBerry Bold (RIM’s first HSDPA smart phone)
– BlackBerry Storm (RIM’s first touch-screen with smart phone with the awardwinning SurePress technology)
– BlackBerry Pearl Flip (RIM’s first “clam-shell” smartphone)
– BlackBerry Curve 8350i (iDen-based smart phone with Push-to-Talk)
– BlackBerry Curve 8900 (based on a next generation platform)
2009 R&D expenditure of $684.7 million with 5000 employees and 2
new centers in U.S. and Germany
Recap
Recommendation
Sell
Buy
Q&A
Competitive Advantage
• Unique industry position
– The only company to provide network
infrastructure as part of an optimized
enterprise solution
– Vertically integrated and provides both
hardware and software (UI, bundled
applications) and related services.
– Yields strong gross and operating margins
with recurring revenue.
Recap
Recommendation
Sell
Buy
Q&A
Risks
• Competition
– Intense competition: Google’s Nexus One,
Motorola Droid and HTC Eris
– Apple moving toward non-exclusive distribution
strategy
– Well-positioned within existing enterprise
accounts but increased competition by Apple,
Microsoft, Android and other platforms
• International exposure
– U.S. sales account for 63% of total revenue, any
changes in competitive, economic or regulatory
environment could affect sales.
Recap
Recommendation
Sell
Buy
Q&A
Risks
• Increased B2C focus
– Consumers demand low security requirements and
are unwilling to pay price premium for RIM features
– Consumer focus on Internet browsing and “apps” and
currently RIM offers sub-par browsing and apps
experience. Future success depends on
strengthening these offerings
• Increased Capital expenditure
– Capital spending increased from $350M in fiscal 2008
to $834M in 2009
– Expect to increase- due to new products and
“outsourcing” of fundamental research via spending
on IP rights
Recap
Recommendation
Sell
Buy
Q&A
Revenue Growth
Recap
Recommendation
Sell
Buy
Q&A
EPS
Recap
Recommendation
Sell
Buy
Q&A
3 month performance
Recap
Recommendation
Sell
Buy
Q&A
1 year performance
Recap
Recommendation
Sell
Buy
Q&A
5 year performance
Recap
Recommendation
Sell
Buy
Q&A
Valuation
Stock Valuation
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
3.4
2.2
4.8
4.2
4.4
.65
.68
.4
.8
.7
1.4
1.2
2
2.0
1.6
.87
.84
1.6
.9
.9
High
Low
Median
Current
4.8
2.9
7.4
9.8
7.7
.84
.81
.7
2.2
1.0
1.8
1.6
2.7
4.8
2.6
1
.96
2.1
2.3
1.4
Recap
Recommendation
Sell
Buy
Q&A
Price Target
Absolute
Valuation
High
Low
Median
Current
A.
B.
C.
D.
E.
F.
G.
H.
P/Forward E
45.7
10.8
25.6
14
25.6
3.3
84.48
P/S
13.7
2.4
6.3
2.7
3.5
26.99
94.465
P/B
22.7
2
6.3
4.7
6.3
14.79
93.177
P/EBITDA
90.01
7.21
23.88
11.99
17
5.79
98.43
P/CF
85.9
10
27.2
14.1
19
4.93
93.67
•
•
•
•
#Your Target *Your Target
Multiple
E, S, B,
etc/Share
Your Target
Price
(F x G)
Current price:
$73.39
Multiples Average:
$92.84
DCF Target Price:
$110.10
50% Multiples + 50% DCF = $101.47 or 38.2% upside
Recap
Recommendation
Sell
Buy
Q&A
DCF
Terminal Discount Rate:=
12.0%
Terminal FCF Growth=
Year
2010E
2011E
15,161
Revenue
18,478
21.9%
% Grow th
3,601
Operating Income
24%
Operating Margin
29
Interest and Other
0.19%
as % of Sales
Taxes
893
Tax Rate
25%
Net Income
2,737
% Grow th
Add Depreciation/Amort
546
3.60%
(200)
-1.32%
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
561
4,188
23%
45
2012E
21,118
14.3%
4.5%
2013E
2014E
2015E
2016E
2017E
24,075
27,445
31,287
35,042
38,546
14.00%
14.00%
14.00%
12.00%
10.00%
2018E
42,015
2019E
45,376
9.00%
8.00%
2020E
47,645
5.00%
4,808
4,808
6,312
7,196
8,060
8,866
9,663
10,437
10,958
22.77%
23.00%
23.00%
23.00%
23.00%
23.00%
23.00%
23.00%
23.00%
105.13
115.64
126.05
136.13
142.94
72.22
82.33
93.86
0.24%
0.43%
0.30%
0.30%
0.30%
0.30%
0.30%
0.30%
0.30%
0.30%
1,036
1,180
1,184
1,558
1,776
1,989
2,187
2,384
2,575
2,704
25%
90
25%
25%
25%
25%
25%
25%
3,197
3,719
3,696
4,837
5,514
6,176
6,794
16.8%
16.3%
-0.6%
30.9%
14.0%
12.0%
10.0%
915
684
3.70%
(200)
0.00%
9.0%
7,998
8.0%
25%
8,397
5.0%
1,098
1,251
1,402
1,542
1,681
1,815
1,906
3.80%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
(200)
0.00%
(200)
0.00%
(200)
0.00%
(200)
0.00%
(200)
0.00%
(200)
0.00%
(200)
0.00%
(200)
0.00%
1,083
1,235
1,408
1,577
1,735
1,891
2,042
2,144
3.70%
4.00%
4.00%
4.50%
4.50%
4.50%
4.50%
4.50%
4.50%
4.50%
4.50%
Free Cash Flow
2,522
2,942
3,455
3,328
4,500
5,158
5,801
6,401
6,995
7,571
7,959
16.6%
17.4%
-3.7%
35.2%
14.6%
12.5%
10.3%
NPV of Cash Flows
$ 27,488.53
NPV of terminal value
$
Projected Equity Value
$ 63,194.83
35,706.30
845
7,405
25%
Capex % of sales
% Grow th
739
781
3.70%
(200)
0.00%
25%
43%
57%
100%
8.2%
Terminal Value
Free Cash Flow Yield
Free Cash Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
14.80
12.67
10.89
23.09
19.77
16.99
9.56
8.14
7.10
15.04
12.80
11.16
574
Shares Outstanding
Current Price
$
70.55
Implied equity value/share
$
110.10
Upside/(Downside) to DCF
9.3%
56%
Terminal P/E
Terminal EV/EBITDA
5.1%
$ 110,898.34
7.18%
13.21
8.56
HP – Buy 50 basis points
• Best performing IT company this month in SIM at 7.9%
• Continues to grow through acquisitions
– EDS 2008
– 3com 2009
• Becoming the first full service provider
• Revised guidance upward for 2010
– Revenues of $121.5-$122.5B vs $118-$119B
– EPS of $4.37-$4.44 vs $4.25-$4.35
Recap
Recommendation
Sell
Buy
Q&A
DCF
Analyst: Jonathan Schick
Terminal Discount Rate =
11.0%
Terminal FCF Grow th =
4.0%
Date: 1/26/10
Year
2009E
Revenue
2010E
114,552
2011E
123678
% Grow th
7.97%
Operating Income
Operating Margin
Interest and Other
7.34%
138066
4.00%
2014E
143589
4.00%
2015E
149332
4.00%
2016E
155306
4.00%
2017E
161518
4.00%
2018E
167979
4.00%
2019E
174698
181686
4.00%
4.00%
9415
13419
16727
14911
15508
16128
16773
17444
18142
18867
19622
10.9%
12.6%
10.8%
10.8%
10.8%
10.8%
10.8%
10.8%
10.8%
10.8%
0
-1%
Taxes
132756
2013E
8.2%
-721
Interest % of Sales
2012E
-1,755
0
0.0%
-2684
0
0.0%
-3345
0
0.0%
-2982
0
0.0%
-3102
0
0.0%
-3226
0
0.0%
-3355
0
0.0%
-3489
0
0.0%
-3628
0
0.0%
-3773
0.0%
-3924
Tax Rate
19%
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
Net Income
7660
10735
13382
11929
12406
12902
13418
13955
14513
15094
15698
40%
25%
-11%
4%
4%
4%
4%
4%
4%
4%
% Grow th
Add Depreciation/Amort
4,773
% of Sales
4.2%
Plus/(minus) Changes WC
(2,034)
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
4,576
3.7%
1,420
Upside/(Dow nside) to DCF
0
5,007
3.1%
0
5,039
3.0%
0
5,066
2.9%
0
5,087
2.8%
0
0.0%
0.0%
3695.00
3710.35
3650.79
4832.31
4882.02
4927.97
4969.78
5007.05
5039.36
5066.23
5087.20
3.2%
3.0%
2.8%
3.5%
3.4%
3.3%
3.2%
3.1%
3.0%
2.9%
2.8%
6704
13021
15058
11929
12406
12902
13418
13955
14513
15094
15698
94%
16%
-21%
4%
4%
4%
4%
4%
4%
4%
49%
Terminal Value
Free Cash Yield
16.0
11.4
9.1
21.2
15.1
12.1
8.6
6.8
5.7
11.5
9.0
7.6
2,437
50.15
$
3.2%
0.0%
5.49%
Current Price
0
4,970
0.0%
51%
Shares Outstanding
3.3%
0.0%
100%
Projected EV/EBITDA
0
4,928
0.0%
162,263
Current EV/EBITDA
3.4%
0.0%
82,137
Projected P/E
0
4,882
0.0%
80,126
Current P/E
3.5%
0.5%
NPV of terminal value
Implied equity value/share
681
4,832
1.1%
NPV of Cash Flow s
Free Cash Flow Yield
3.5%
-1.8%
% Growth
Projected Equity Value
4,646
66.58
32.8%
233,222
6.73%
Terminal P/E
14.9
Terminal EV/EBITDA
9.4
Sensitivity Analysis
Terminal Discount Rate
Terminal FCF Growth
$ 66.58
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
9.0%
87.11
92.50
99.09
107.33
117.92
132.05
9.5%
79.95
84.26
89.43
95.76
103.66
113.83
10.0%
73.88
77.39
81.53
86.49
92.56
100.15
10.5%
68.69
71.57
74.93
78.91
83.67
89.50
11.0%
64.19
60.24
56.77
66.58
62.26
58.47
69.35
64.56
60.41
72.58
67.22
62.62
76.39
70.32
65.17
80.97
73.98
68.15
11.5%
12.0%
Recap
Recommendation
Sell
Buy
Q&A
Valuation - multiples
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
1.5
.63
1.0
.67
P/Forward E
1.6
.64
.88
.77
P/B
1.4
.5
.9
1.3
P/S
1.4
.4
.7
.9
P/CF
1.8
.6
1.0
.8
Relative to Industry
High
Low
Median
Current
P/Trailing E
1.1
.54
.79
.74
P/Forward E
1.2
.57
.75
.81
P/B
.7
.3
.6
.6
P/S
1.0
.5
.7
.6
P/CF
1.2
.5
.8
.7
Recap
Recommendation
Sell
Buy
Q&A
Valuation - multiples
Absolute
Valuation
High
Low
Median
Current
#Your
Target
Multiple
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
37.9
3.0
6.9
49.79
29.1
C.
7.8
.5
1.3
5.07
5.5
D.
15.2
1.0
2.5
11.93
11.5
E.
10.8
1.0
2.7
6.86
8.0
F.
15.54
1.0
2.5
10.0
11.5
*Your
Target
E, S, B,
etc/Share
G.
4.27
49.19
17.96
7.07
6.06
Your
Target
Price
(F x G)
H.
66.36
49.19
44.91
70.70
69.72
Price for multiples - $60.53
DCF Target Price - $66.58
50% multiples, 50% DCF - $63.55 or 22.21%
Recap
Recommendation
Sell
Buy
Q&A
Intel- Buy 56bp
• Market Cap: $113.4bn
• World largest semiconductor chip maker,
market share of over 70%
• 80% international sales
• 2009 Q4 revenue jumped 28% year-overyear
• Benefit from IT spending rebound
Recap
Recommendation
Sell
Buy
Q&A
DCF
Hanh Bui
3/8/2010
Terminal Discount Rate:=
Terminal FCF Growth=
Year
2010E
Revenue
Operating Margin
G/L on equity investment,
net; Interest and Other
as % of Sales
Taxes
Tax Rate
Net Income
2018E
2019E
64,540
8.00%
69,703
8.00%
74,582
7.00%
80,176
7.50%
11,602
29%
13,012
31%
14,532
31%
14,789
29%
16,046
29%
17,330
29%
18,717
29%
20,214
29%
21,629
29%
23,251
29%
319
0.81%
(116)
-0.27%
(33)
-0.07%
(51.00)
-0.10%
(55.33)
-0.10%
(59.76)
-0.10%
(64.54)
-0.10%
(69.70)
-0.10%
(74.58)
-0.10%
(80.18)
-0.10%
3,576
30%
3,482
27%
3,915
27%
4,155
28%
4,508
28%
4,869
28%
5,259
28%
5,679
28%
6,077
28%
6,533
28%
8,345
9,414
12.8%
10,584
12.4%
10,583
0.0%
11,483
8.5%
12,401
8.0%
13,393
8.0%
14,465
8.0%
15,477
7.0%
16,638
7.5%
4600
10.79%
285
0.67%
4,900
11.50%
4700
10.05%
163
0.35%
5,000
10.69%
5,202
10.20%
0.00%
5,100
10.00%
5,644
10.20%
0.00%
5,533
10.00%
6,095
10.20%
0.00%
5,976
10.00%
6,583
10.20%
0.00%
6,454
10.00%
7,110
10.20%
0.00%
6,970
10.00%
7,607
10.20%
0.00%
7,458
10.00%
8,178
10.20%
0.00%
8,018
10.00%
9,399
10,447
10,685
11,593
12,521
13,522
14,604
15,626
16,798
7,804
20.4%
$ 70,438.28
$ 81,012.42
$ 151,450.70
11.1%
47%
53%
100%
2.3%
8.5%
8.0%
8.0%
8.0%
7.0%
7.5%
Terminal Value
Free Cash Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
13.86
18.15
6.53
8.75
Shares Outstanding
5,578
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2017E
59,759
8.00%
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
2016E
55,332
8.50%
Free Cash Flow
% of Sales
Subtract Cap Ex
2015E
50,998
9.00%
Capex % of sales
Plus/(minus) Changes WC
2014E
46,787
9.8%
4500
11.44%
(241)
-0.61%
4,800
12.20%
% of Sales
2013E
42,617
8.4%
% Grow th
Add Depreciation/Amort
2012E
39,331
% Grow th
Operating Income
2011E
12.0%
4.5%
$
20.74
$
27.15
31%
12.29
16.09
5.97
8.00
10.93
14.31
5.47
7.33
Terminal P/E
Terminal EV/EBITDA
Sensitivity Analysis
$ 29.66
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
$
$
$
$
$
$
$
9.0%
38.67
40.97
43.73
47.11
51.32
56.75
63.97
$
$
$
$
$
$
$
9.5%
35.49
37.36
39.56
42.21
45.45
49.49
54.70
$
$
$
$
$
$
$
10.0%
32.76
34.30
36.09
38.21
40.75
43.86
47.74
$
$
$
$
$
$
$
10.5%
30.41
31.69
33.16
34.88
36.92
39.36
42.34
Recap
$
$
$
$
$
$
$
11.0%
28.35
29.42
30.65
32.07
33.72
35.67
38.02
$
$
$
$
$
$
$
11.5%
26.54
27.45
28.48
29.66
31.02
32.61
34.48
Recommendation
$
$
$
$
$
$
$
12.0%
24.94
25.71
26.59
27.58
28.71
30.02
31.54
Sell
$
$
$
$
$
$
$
12.5%
23.50
24.17
24.92
25.76
26.71
27.80
29.05
Buy
$
$
$
$
$
$
$
13.0%
22.22
22.80
23.44
24.16
24.96
25.88
26.92
Q&A
Valuation
Absolute Valuation High
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
•
•
•
•
B.
67.5
16.9
15.3
33.5
43.8
Low
Median
C.
D.
11.9
1.8
1.8
5.72
6.6
21.3
4.3
3.7
10.44
12.4
Current #Your Target
Multiple
E.
12.7
3.3
2.7
8.51
10
*Your Target E, S, B,
etc/Share
F.
1.50
7.05
7.40
2.43
2.15
Your Target
Price
(F x G)
H.
31.87
23.27
27.38
25.37
26.66
Buy
Q&A
G.
21.3
3.3
3.7
10.44
12.4
Current price:
$20.79
Multiples Average:
$26.91
DCF Target Price:
$27.58
50% Multiples + 50% DCF = $27or 31% upside
Recap
Recommendation
Sell
Sell IBM
• International Business Machines – core focus on
providing IT strategy and consulting services to
business domains
• Competition in all business lines from offshore
companies
• Increasing dollar value a concern for their
revenue from offshore consulting
• No sign of potential breakthrough technologies
(growing through acquisitions)
Recap
Recommendation
Sell
Buy
Q&A
Financial Valuations
Price Target from Valuation: $135.28
Recap
Recommendation
Sell
Buy
Q&A
DCF
IBM
Analyst: Vamsi Namburi
Date: 03/07/2010
Year
Revenue
Terminal Discount Rate =
Terminal FCF Grow th =
2009E
95,727
% Grow th
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
17,248
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Dow nside) to DCF
Debt
Cash
Cash/share
18,838
2011E
102,238
3.5%
20,519
2012E
106,328
4.0%
22,329
107,391
1.0%
22,552
109,002
1.5%
23,435
111,182
2.0%
24,460
113,739
2017E
116,583
2.3%
25,023
2.5%
25,648
2.1%
26,187
1.5%
24,163
757
744
752
763
778
796
816
833
846
0.7%
0.70%
0.70%
0.70%
0.70%
0.70%
0.70%
0.70%
0.70%
13,400
13,413
0.1%
4,940
5,137
14,526
8.3%
5,316
6,152
28.5%
15,433
6.2%
5,316
6,213
28.5%
15,587
1.0%
5,370
6,462
28.5%
16,211
4.0%
5,450
6,749
28.5%
16,932
4.5%
5,559
6,905
7,077
28.5%
17,322
28.5%
17,755
2.3%
5,687
2.5%
5,829
22.0%
120,817
0.7%
26.5%
22.0%
119,031
2019E
711
5,237
22.0%
2018E
0.6%
26.0%
22.0%
2016E
531
4,713
21.5%
2015E
20.1%
26.0%
21.0%
2014E
19.1%
4,708
21.0%
2013E
18.0%
7,226
28.5%
18,128
2.1%
5,952
20.0%
6,646
28.5%
16,672
-8.0%
3,624
5.2%
5.2%
5.2%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
3.0%
800
400
52
(532)
(107)
218
556
455
933
595
121
0.8%
0.4%
0.1%
-0.5%
-0.1%
0.2%
0.5%
0.4%
0.8%
0.5%
3,509
3.7%
15,631
% Grow th
NPV of Cash Flow s
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
98,781
3.2%
% Grow th
Add Depreciation/Amort
2010E
11.0%
4.0%
3,621
3.7%
15,329
-1.9%
101,933
84,075
186,008
9.45%
12.3
13.9
11.2
12.2
1,300
$ 127.25
$ 143.08
12.4%
98,000
14,000
10.77
3,747
3.7%
16,147
5.3%
55%
45%
100%
3,934
3.7%
16,284
0.8%
4,296
4.0%
16,554
1.7%
4,033
3.7%
17,846
7.8%
4,225
3.8%
18,823
5.5%
4,550
4,314
4.0%
18,914
3.7%
20,203
0.5%
6.8%
4,166
3.5%
20,508
1.5%
Terminal Value
Free Cash Yield
12.3
13.9
10.4
11.3
11.4
12.8
9.7
10.5
0.1%
4,349
3.6%
16,068
-21.7%
238,725
6.73%
Terminal P/E
14.3
Terminal EV/EBITDA
11.6
Discount Rate
Sensitivity Analysis
143
9%
9.5%
10%
10.5%
11%
11.5%
12%
Terminal FCF Growth
3.5%
4.0%
4.5%
5.0%
$ 184.01 $ 194.36 $ 207.01 $ 222.81
$ 169.86 $ 178.14 $ 188.07 $ 200.20
$ 157.84 $ 164.56 $ 172.50 $ 182.03
$ 147.49 $ 153.02 $ 159.47 $ 167.10
$ 138.48 $ 143.08 $ 148.39 $ 154.59
$ 130.56 $ 134.43 $ 138.85 $ 143.95
$ 123.55 $ 126.82 $ 130.54 $ 134.78
5.5%
$ 243.14
$ 215.37
$ 193.68
$ 176.25
$ 161.91
$ 149.90
$ 139.68
Price Target from DCF: $143.08
Overall Price (50% from both DCF and Valuation) :
0.5*143.08+0.5*135.08 = $139.08
Recap
Recommendation
Sell
Buy
Q&A
Stocks Analyzed
• Researched stocks in Telecom Sector with focus on low-medium
market caps and growth potential
Recommendation
• Sell 430bp of IBM
• Buy 350bp of RIMM
• Buy 50bp of HPQ
• Buy 56bp of INTC
Recap
Recommendation
Sell
Buy
Q&A
Q&A
NCR
•Discount Rate: 13.2%
•Terminal FCF Growth: 5%
Analyst: Hang Nguyen
Date: Jan 18, 2010
Year
Revenue (Millions $USD)
% Growth
Terminal Discount Rate =
Terminal FCF Growth =
2010E
4,833.59
2011E
2012E
2013E
2014E
CAPM
Beta
Rf
MRP
13.20%
5.00%
2015E
2016E
1.5
4.50%
5.8%
2017E
2018E
2019E
2020E
5,124.78 5,508.49 5,938.16 6,377.58 6,824.01 7,274.40 7,725.41 8,173.48 8,614.85
6.02%
7.49%
7.80%
7.40%
7.00%
6.60%
6.20%
5.80%
5.40%
9,045.59
5.00%
•Current :
$13.06
Operating Income
Operating Margin
228.79
4.73%
264.09
5.15%
311.85
5.66%
356.29
6.00%
369.90
5.80%
382.14
5.60%
392.82
5.40%
401.72
5.20%
408.67
5.00%
413.51
4.80%
434.19
4.80%
•DCF Target:
•Upside:
$18.14
Interest and Other
% of Sales
142.11
2.94%
99.93
1.95%
52.88
0.96%
59.38
1.00%
63.78
1.00%
68.24
1.00%
72.74
1.00%
77.25
1.00%
81.73
1.00%
86.15
1.00%
90.46
1.00%
39%
Taxes
Tax Rate
23.40
27.00%
62.38
35.00%
77.69
30.00%
83.13
28.00%
85.71
28.00%
87.89
28.00%
89.62
28.00%
90.85
28.00%
91.54
28.00%
91.66
28.00%
96.25
28.00%
63.28
101.77
60.84%
181.28
78.12%
213.77
17.92%
220.41
3.10%
226.01
2.54%
230.45
1.97%
233.62
1.37%
235.40
0.76%
235.70
0.13%
247.49
5.00%
140.00
2.90%
(86.73)
-1.79%
220.00
4.55%
245.99
4.80%
(61.85)
-1.21%
250.00
4.88%
220.34
4.00%
(49.31)
-0.90%
220.34
4.00%
207.84
3.50%
(59.38)
-1.00%
207.84
3.50%
191.33
3.00%
(63.78)
-1.00%
127.55
2.00%
136.48
2.00%
(68.24)
-1.00%
136.48
2.00%
145.49
2.00%
(72.74)
-1.00%
145.49
2.00%
154.51
2.00%
(77.25)
-1.00%
154.51
2.00%
163.47
2.00%
(81.73)
-1.00%
163.47
2.00%
172.30
2.00%
(86.15)
-1.00%
172.30
2.00%
180.91
2.00%
(90.46)
-1.00%
180.91
2.00%
159.61
128.00%
230.59
44.47%
273.16
18.46%
347.96
27.39%
294.25
-15.44%
303.20
3.04%
310.87
2.53%
317.13
2.01%
321.85
1.49%
337.94
5.00%
Terminal Value
4,665.27
Net Income
% Growth
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
70.00
1,474.95
1,350.24
2,825.19
3.44%
32.11
44.65
4.27
6.42
Shares Outstanding
155.72
Current Price
Implied equity value/share
Upside/(Downside) to DCF
13.05
18.14
39.02%
Debt
Cash
Cash/share
25.00
483.36
3.10
52.21%
47.79%
100.00%
19.97
27.76
3.09
4.64
Free Cash Yield
11.21
15.58
2.96
4.45
7.24%
Terminal P/E
18.85
Terminal EV/EBITDA
6.84
EPS consensus
EPS guidance
Revenue consensus
Revenue guidance
0.48
.41 - .51
N/A
N/A
NCR
18.14
4.50%
4.60%
4.70%
4.80%
4.90%
5.00%
5.10%
5.20%
5.30%
5.40%
5.50%
13.00%
18.05
18.16
18.26
18.37
18.47
18.59
18.70
18.82
18.94
19.06
19.19
Absolute
Valuation
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
13.10%
17.85
17.95
18.05
18.15
18.25
18.36
18.47
18.59
18.70
18.82
18.94
13.20%
17.64
17.74
17.84
17.94
18.04
18.14
18.25
18.36
18.47
18.59
18.71
13.30%
17.45
17.54
17.63
17.73
17.83
17.93
18.03
18.14
18.25
18.36
18.47
13.40%
17.25
17.34
17.43
17.53
17.62
17.72
17.82
17.92
18.03
18.14
18.25
13.50%
17.06
17.15
17.24
17.33
17.42
17.52
17.61
17.71
17.81
17.92
18.03
13.60%
16.88
16.96
17.05
17.13
17.22
17.32
17.41
17.51
17.61
17.71
17.81
13.70%
16.69
16.78
16.86
16.94
17.03
17.12
17.21
17.31
17.40
17.50
17.60
High
Low
Median
Current
#Your
Target
Multiple
B.
26.8
1.0
5.1
13.1
13.6
C.
5.3
.10
.50
1.61
1.5
D.
9.9
.40
1.4
4.85
5.5
E.
26.8
.40
4.5
4.94
9.3
F.
9.9
.40
1.4
4.85
5.5
13.80%
16.52
16.60
16.68
16.76
16.84
16.93
17.02
17.11
17.20
17.30
17.39
*Your
Target
E, S, B,
etc/Share
G.
.406
31.04
2.9
2.64
1.4
13.90%
16.34
16.42
16.50
16.58
16.66
16.74
16.83
16.92
17.01
17.10
17.19
14.00%
16.17
16.25
16.32
16.40
16.48
16.56
16.64
16.73
16.82
16.91
17.00
Your
Target
Price
(F x G)
H.
4.023
12.42
4.06
12.8
7.7
Oracle
Discount Rate 12%
Terminal Growth 4%
Current $24.76
Price Target $32.84
Upside 33.1%
Oracle
Absolute
Valuation
High
Low
Median
Current
#Your Target
Multiple
*Your
Target E, S,
B,
etc/Share
Your Target
Price
(F x G)
A.
B.
C.
D.
E.
F.
G.
H.
P/Forward E
117.9
10.6
25.0
13.5
21
1.55
32.55
P/S
27.5
2.7
6.2
5.0
5.3
6.1
32.33
P/B
61.9
3.4
9.9
3.8
5.2
6.26
32.57
P/EBITDA
97.13
8.06
16.27
8.81
12
2.7
32.42
P/CF
151.5
11.1
27.3
15.5
21
1.53
32.25