Eric Hatch
Christina Haubrock
Melissa Hickey
November 24, 2009




Industrials Sector Recap
Recommendation
GE - Sell
GD - Buy
SIM PORTFOLIO 10/31/2009
Quantity
Security
Unit
Cost
Market
Price
Unrealized
Gain/(Loss)
Unit
Inc.
Est. Ann.
Income
1.32
$ 6,705.60
5,080
Emerson Electric
34.67
37.75
$
15,671
2,900
First Solar Inc.
128.32
121.93
$ (18,534)
-
30,700
General Electric
25.75
14.26
$ (352,881)
0.40
25,100
Oshkosh Truck
33.17
31.26
$
(47,841)
-
31,100
UTI Worldwide
12.54
12.47
$
(2,074)
0.06
$
-
$ 12,280.00
$
-
$ 1,866.00
SIM PORTFOLIO 10/31/2009
Security
% of
Assets
Eq. shares
out
Market Cap
($ Mill)
Beta
Emerson Electric Co.
1.06%
751.59
28,372.50
0.09
First Solar Inc.
1.96%
85.11
10,377.20
1.45
General Electric Co.
2.43%
10,626.84
151,538.70
1.19
Oshkosh Truck Corp.
4.36%
89.39
2,794.50
1.88
UTI Worldwide Inc.
2.15%
100.26
1,250.30
1.22
SIM OWNED COMPANIES
Company
Ticker
Upside
Emerson Electric Co.
EMR
17.2%
First Solar Inc.
FSLR
21.18%
General Electric Co.
GE
6.9%
Oshkosh Truck Corp.
OSK
15.00%
UTI Worldwide Inc.
UTIW
16.60%
*prices as of Friday 11/20/2009 close
Currently overweight by 188 BP
S&P 500 Weight vs. SIM Weight
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
S&P 500 Weight
SIM Weight
Industrials
12.50%
12.00%
11.50%
11.00%
10.50%
10.00%
9.50%
9.00%
11.97%
10.09%
S&P 500 Weight
SIM Weight
INDUSTRIALS SECTOR SHOULD MAINTAIN THE CURRENT
LEVEL OF 188 BASIS POINTS OVERWEIGHT

Positives:
FINANCIAL
 Sector ratios indicate that the sector is undervalued
ECONOMIC
 Improving global economic recovery
 Increasingly global in scope
 Favorable impact anticipated from the infrastructure spending

Risks:


Slower economic recovery than anticipated
Lag time associated with the Industrials Sector
SELL 243 BPS
GENERAL ELECTRIC
(GE)
Current Price*:
Target Price:
Upside:
$15.76
$16.85
+5.7%
SELL 100 BPS
OSHKOSH CORP
(OSK)
Current Price*:
Target Price:
Upside:
$37.97
$43.57
+14.7%
BUY 343 BPS
GENERAL DYNAMICS
(GD)
Current Price*:
Target Price:
Upside:
$66.40
$102.07
+54.64%
*prices as of Friday 11/20/2009 close
20
18
16
14
12
10
Close
8
6
4
2
0
180%
160%
140%
120%
100%
80%
60%
40%
GE
20%
EMR
GD
0%
03/05/2005
-20%
04/05/2005
05/05/2005
06/05/2005
07/05/2005
08/05/2005
09/05/2005
10/05/2005
11/05/2005
S&P




Operating in 5 broad business segments
 Energy, Technology, Media, Capital Finance,
Consumer & Industrial Goods
$182.5B in revenue (as of FY08)
 $129.3B from US & Europe (71% of total sales)
Pending sale of NBC Universal
GE Capital
 Which regulatory authorities oversee this
segment
 $340B Temporary Liquidity Guarantee Program
 25% of program used to cover debt issued
by GE Capital
General Electric (GE)
Analyst: Eric Hatch
11/24/2009
Terminal Discount Rate =
Terminal FCF Growth =
Year
2009E
Revenue
153,723
% Grow th
11,203
EBT Margin
7.3%
Interest
Interest % of Sales
Taxes
9.0%
Subtract Cap Ex
Capex % of sales
Free Cash Flow
19,775
11.5%
181,762
192,122
5.7%
20,903
11.5%
5.7%
22,094
11.5%
203,073
5.7%
23,353
11.5%
214,648
5.7%
24,685
11.5%
2018E
226,883
5.7%
26,092
11.5%
2019E
239,816
5.7%
27,579
11.5%
-
-
-
-
-
-
-
-
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
2,588
19.0%
11,034
10,595
3,363
19.0%
14,337
29.9%
10,004
3,555
19.0%
15,154
5.7%
10,249
3,757
19.0%
16,018
5.7%
11,177
3,971
19.0%
16,931
4,198
19.0%
17,896
5.7%
11,815
5.7%
12,488
4,437
19.0%
18,916
5.7%
13,200
4,690
19.0%
19,994
5.7%
13,952
4,957
19.0%
21,134
5.7%
14,747
5,240
19.0%
22,339
5.7%
15,588
6.8%
7.0%
6.5%
6.3%
6.5%
6.5%
6.5%
6.5%
6.5%
6.5%
6.5%
(3,689)
(3,633)
(3,694)
(3,904)
(4,127)
(4,362)
(4,611)
(4,874)
(5,152)
(5,445)
(5,756)
-2.4%
-2.4%
-2.4%
-2.4%
-2.4%
-2.4%
-2.4%
-2.4%
-2.4%
-2.4%
-2.4%
(7,744)
(9,680)
(10,004)
(10,249)
(11,177)
(11,815)
(12,488)
(13,200)
(13,952)
(14,747)
(15,588)
-5.0%
-6.4%
-6.5%
-6.3%
-6.5%
-6.5%
-6.5%
-6.5%
-6.5%
-6.5%
-6.5%
9,598
8,317
-13.4%
10,650.0
$
$
11.5%
5.7%
2017E
0.0%
% Grow th
Shares Outstanding
18,709
171,960
2016E
-
10,524
% of Sales
11.5%
5.7%
2015E
0.0%
5.0%
Plus/(minus) Changes WC
17,700
162,687
2014E
-
10,508
% of Sales
1.7%
2013E
0.0%
% Grow th
Add Depreciation/Amort
153,914
2012E
-
6.2%
Net Income
13,622
2011E
0.0%
695
Tax Rate
Debt
Cash
Cash/share
151,360
-1.5%
EBT
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2010E
10.5%
4.0%
15.76
16.24
3.0%
523,762
48,187
4.52
10,643
28.0%
11,250
5.7%
11,891
5.7%
12,569
13,285
5.7%
Current Price
Implied equity value/share
Upside to DCF
5.7%
14,043
5.7%
$15.76
$16.24
3.0%
14,843
5.7%
15,689
5.7%
16,583
5.7%
Terminal Growth Rate
Discount Rate
10.00%
10.25%
10.50%
10.75%
11.00%
3.00%
16.06
15.48
14.79
14.43
13.96
3.50%
16.79
16.14
15.40
14.99
14.47
4.00%
17.49
16.76
16.24
15.48
14.90
4.50%
18.63
17.81
16.91
16.36
15.72
5.00%
19.84
18.88
17.87
17.22
16.50
Sensitivity Results Range:
$13.96 - $19.84
Multiples Valuation
Price/Forward E
P/S
P/B
P/EBITDA
Target Multiples
16.3
2.2
3.2
3.88
Average Target Price
Target Price
$
16.89
$
31.27
$
31.46
$
$
14.86
23.62
Current
18.1
1.1
1.4
3.88
Final Average Target Price for GE:
90% DCF weight and 10% Multiples = $16.85 (+5.7%)
General Dynamics serves the
U.S. government and
commercial; and
international defense and
commercial customers in
North America, Europe, the
Middle East, South America,
Africa, and the Asia/Pacific.
Focus on high quality and
cost conscious
General Dynamics was
founded in 1899 and is based
in Falls Church, Virginia.
STOCK INFORMATION
Sector (S&P):
Industry (S&P):
Market Cap:
Shares Outstanding:
Avg Daily Volume:
YTD Return:
52 Week Range:
Dividend Yield:
Beta:
Industrials
Aerospace
Defense
25.64B
385.8M
2.3M
11.23%
$35.28 -$68.84
$1.52
1.26

Aerospace


Combat Systems


Supplies land and amphibious combat
machines and systems, including armored
vehicles, power trains, turrets, munitions and gun systems.
Marine Systems


Designs, manufactures and provides
services for mid-size, large cabin and
ultra-long range business aircraft.
Designs and builds submarines, surface combatants, auxiliary
ships and large commercial vessels.
Information Systems and Technology

Expertise lies in specialized data acquisition and processing, in
advanced electronics, and in battlespace information networks
and management systems.

Strengths





Diversity of business
Diversity of customers
Successful Acquisitions
Top line growth
Weakness

Jet demand in weak economy
Government Outlays for Defense Procurement
Correlation: .74

Growth - Proven
GD has shown sizeable growth trend and
will continue to grow with acquisitions

Profitability - Strong
Operating margins range from
8.3%-12.6%over the last 10 years.
A push to focus on supply chain
will ensure sustainability of a 12%
margin.

Financial Health - Strong
Ratios indicate financial strength, liquidity. It is
important to note GD is currently carrying a $1.6M
cash cushion and a debt/equity of .31
General Dynamics (GD)
Analyst: Melissa Hickey
Terminal Discount Rate =
10.5%
Terminal FCF Growth =
4.0%
11/22/2009
Year
Revenue
2009E
32,054
34,619
% Growth
EBT
EBT Margin
Interest
Interest % of Sales
Taxes
Tax Rate
Net Income
8.0%
3,714
4,021
11.6%
(135)
-0.4%
1,151
38.0%
2,562
% of Sales
Plus/(minus) Changes WC
2011E
36,869
6.5%
4,291
2012E
39,450
7.0%
4,537
2013E
41,817
6.0%
5,018
2014E
43,907
5.0%
5,269
2015E
45,883
4.5%
5,506
2016E
47,719
4.0%
5,726
2017E
49,627
4.0%
5,955
2018E
51,612
4.0%
6,193
Current Price
$66.47
(135)
(135)
(144)
(153)
(161)
(168)
(175)
(182)
Implied
equity
value/share
$101.45
Upside to DCF
52.6%
(189)
1,247
2,282
11.6%
11.6%
11.5%
12.0%
12.0%
12.0%
12.0%
12.0%
-0.4%
-0.4%
-0.4%
-0.4%
-0.4%
-0.4%
-0.4%
-0.4%
38.0%
2,775
% Growth
Add Depreciation/Amort
2010E
8.3%
1,330
38.0%
2,961
6.7%
1,669
38.0%
2,723
-8.0%
1,849
38.0%
3,016
10.8%
1,941
38.0%
3,167
5.0%
2,028
38.0%
3,310
4.5%
2,110
38.0%
3,442
4.0%
2,194
38.0%
3,580
4.0%
12.0%
-0.4%
38.0%
3,723
4.0%
2019E
53,677
4.0%
6,441
12.0%
(197)
-0.4%
2,373
38.0%
3,872
4.0%
344
242
184
197
209
220
229
239
248
258
268
1.1%
0.7%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
(33)
(201)
(214)
(130)
(138)
(145)
(151)
(157)
(164)
(170)
(177)
-0.1%
-0.6%
-0.6%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
Subtract Cap Ex
512
555
592
197
209
220
229
239
248
258
268
Capex % of sales
1.6%
1.6%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
Free Cash Flow
2,362
2,261
2,339
2,593
2,878
3,022
3,158
3,284
3,416
3,552
3,695
-4.3%
3.5%
10.8%
11.0%
5.0%
4.5%
4.0%
4.0%
4.0%
4.0%
% of Sales
% Growth
Sensitivity Matrix - Discount Rate
Change
Discount Rate
Growth Rate
NPV of Cash Flows
Terminal Value
NPV of terminal value
Implied equity value/share
-1.00%
-0.75%
-0.50%
-0.25%
9.50%
9.75%
10.00%
10.25%
10.50%
10.75%
11.00%
11.25%
11.50%
12.50%
13.50%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
$18,198
$17,983
$17,772
$17,565
$17,361
$17,161
$16,964
$16,770
$16,580
$15,851
$15,169
$69,861
$66,823
$64,039
$61,478
$59,113
$56,924
$54,891
$52,998
$51,231
$45,204
$40,446
28190
26356
24690
23170
21780
20505
19332
18250
17250
13920
11400
$120.24
$114.93
$110.06
$105.59
$101.45
$97.63
$94.08
$90.77
$87.69
$77.17
$68.87
0.25%
0.50%
0.75%
1.00%
2.00%
3.00%
Discount Rate Sensitivity Results:
$68.87 – $120.24
Growth Rate Sensitivity Results:
$87.34 - $152.87
Sensitivity Matrix - Growth Rate
Change
Discount Rate
Growth Rate
NPV of Cash Flows
Terminal Value
NPV of terminal value
Implied equity value/share
-1.00%
-0.75%
-0.50%
-0.25%
10.50%
10.50%
10.50%
10.50%
10.50%
10.50%
10.50%
10.50%
10.50%
10.50%
10.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
$17,361
$17,361
$17,361
$17,361
$17,361
$17,361
$17,361
$17,361
$17,361
$17,361
$17,361
$44,335
$47,337
$50,739
$54,627
$59,113
$64,347
$70,533
$77,955
$87,028
$98,368
$112,948
16335
17441
18695
20127
21780
23709
25988
28723
32065
36244
41616
$87.34
$90.21
$93.46
$97.17
$101.45
$106.45
$112.36
$119.45
$128.11
$138.94
$152.87
0.25%
0.50%
0.75%
1.00%
2.00%
3.00%
Average Target Price for Multiples Valuation:
$106.06
High
Low
Median
Current
#Your
Target
Multiple
Target E,
S, B,
etc/Share
P/Forward E
19.7
6.5
15.4
10.4
15.4
7.19
$
109.32
P/S
1.8
.6
1.2
.8
1.2
89.73
$
107.68
P/B
4.8
1.6
3.2
2.2
3.2
30.21
$
96.68
P/EBITDA
13.42
3.93
9.67
6.14
9.67
10.83
$
108.15
P/CF
18.2
5.5
14.0
8.7
14.0
7.64
$
108.49
Absolute
Valuation
Target Price
Final Average Target Price for GD:
75% DCF weight and 25% Multiples = $102.17 (+53.71%)
BUY 343 BASIS POINTS OF GD

Positives:
FINANCIAL
 Ratios indicate that the stock is undervalued
 Proof of success via acquisitions
ECONOMIC
 Improving global economic recovery
 Relationship with Defense Department

Risks:


Aerospace may never rise to pre-economic meltdown levels
Unpredictable defense spending
GENERAL DYNAMICS (GD)
Current Price*:
Target Price:
Upside:
Recommendation:
$66.47
$102.17
+53.71%
BUY
*price as of Friday 11/20/2009 close
SELL 243 BPS
GENERAL ELECTRIC
(GE)
Current Price*:
Target Price:
Upside:
$15.76
$16.85
+5.7%
SELL 100 BPS
OSHKOSH CORP
(OSK)
Current Price*:
Target Price:
Upside:
$37.97
$43.57
+14.7%
BUY 343 BPS
GENERAL DYNAMICS
(GD)
Current Price*:
Target Price:
Upside:
$66.40
$102.07
+54.64%
*prices as of Friday 11/20/2009 close

Homer’s reaction to GE’s
upside. Doh!!

Homer’s reaction to General
Dynamic’s upside. Wow!!