Information Technology
Finance 724/824
SIM Class
Christopher Moran
Suresh Ramasubramanian
Sean Ramsey
Sector Recommendation Recap
IT sector is overweight by 152 basis points.
Our recommendation is to maintain the overweight position.
5- Year
High
Low
Median
Current
P/E Forward
24.6
12.1
20.4
16.8
P/E Trailing
31.5
11.1
22.5
14.0
P/B
4.8
2.3
4.0
3.1
P/S
3.1
1.3
2.6
1.7
P/CF
17.1
8.0
14.7
9.9
Net Profit
Margin
12.2
11.0
11.3
11.8
ROE
22.5
16.7
19.5
21.7
Sector Recommendation Recap
Reasons for maintaining an Overweight
•
•
•
•
Above average balance sheet strength
Immense potential for growth (market cycle – post recession)
Market leaders U.S. based multi-nationals
Sector is less cyclical than it was earlier this decade.
Reasons for keeping it at current weight
• Growth should not be significantly impacted by consumer savings rate – IT
focuses on reducing costs and improving efficiency
• Potential upside from U.S. and China stimulus plan
Current Holdings
Secturity
Hewlett Packard Co.*
Intel Corp.
Microsoft Corp.
Oracle Corp*
NCR Corp
Total
Price
34.35
15.72
20.89
19.59
10.74
Value (5/29/09)
$ 611,533.05
$ 438,588.00
$ 766,663.00
$ 752,647.80
$ 432,822.00
Gain/Loss
$ (228,754.31)
$ (177,209.00)
$ (252,094.92)
$ 88,295.58
$ (636,913.55)
Forecast
$ 42.00
$ 17.99
$ 27.91
$ 21.50
$ 13.89
Upside Percent of Portfolio
22.27%
4.29%
14.44%
2.95%
33.60%
4.98%
9.75%
4.97%
29.33%
2.74%
19.92%
*Forecast for HPQ and ORCL are based on average analyst target price. Source: www.marketwatch.com
Recommending
Recommending
APPLE Multiple Valuation
Absolute Valuations
Mean
Current
Target
Estimates
Target Price
Price/Forward E
30.4
25.9
31.0
5.7
175.2
Price/Sales
3.6
3.7
4.0
36.5
146.0
Price/B
6.6
5.0
6.8
27.2
184.7
Price/CF
35.6
22.5
36.1
6.0
217.9
Mean
180.9
APPLE DCF Valuation
DCF = 187.42
EPS Calculated
Consensus
High
Low
Analyst Coverage
2011E
2010E
2009E
7.89
6.47
6.24
7.20
5.15
35
5.64
5.48
5.99
4.60
36
Terminal Discount Rate: 11%
Terminal FCF Growth Rate: 3.5%
Sales Growth
80.00%
Sales Growth
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2003
2004
2005
2006
2007
2008
2009E
2010E
2011E
Terminal Disc Rate
Sensitivity Analysis
11.0%
2.0%
$166.95
2.5%
$172.97
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
$156.24
$146.67
$138.07
$130.30
$123.25
$116.83
$161.42
$151.14
$141.96
$133.69
$126.23
$119.46
Sensitivity Analysis
Terminal FCF Growth
3.0%
3.5%
$179.74
$187.42
$167.20
$156.11
$146.25
$137.43
$129.49
$122.32
$173.70
$161.67
$151.03
$141.56
$133.08
$125.46
4.0%
$196.19
4.5%
$206.31
5.0%
$218.12
$181.08
$167.92
$156.36
$146.14
$137.05
$128.91
$189.50
$175.00
$162.36
$151.27
$141.46
$132.72
$199.22
$183.09
$169.17
$157.04
$146.39
$136.96
Current Price is $135.81, blue numbers represent 20%+ upside.
APPLE Summary
Multiple Price Target: $180.9
DCF Price Target:
$187.4
Final Price Target:
$184.2
3 Month trend
Apple Leads the way. Intel trails SP500. Oracle slightly better than SP500.
Rebalanced Holdings
Secturity
Hewlett Packard Co.*
Intel Corp.
Microsoft Corp.
Oracle Corp*
NCR Corp
Apple
Total
Price
34.35
15.72
20.89
19.59
10.74
135.81
Value (5/29/09)
$ 611,533.05
$ 438,588.00
$ 766,663.00
$ 752,647.80
$ 432,822.00
Gain/Loss
$ (228,754.31)
$ (177,209.00)
$ (252,094.92)
$ 88,295.58
$ (636,913.55)
Forecast
$ 42.00
$ 17.99
$ 27.91
$ 21.50
$ 13.89
$ 184.17
Upside Percent of Portfolio
22.27%
4.29%
14.44%
2.95%
33.60%
4.98%
9.75%
4.97%
29.33%
2.74%
35.61%
0.00%
Change New Allocation
-1.00%
3.29%
-0.50%
2.45%
-0.50%
4.48%
-0.50%
4.47%
0.00%
2.74%
2.50%
2.50%
19.92%
19.92%
*Forecast for HPQ and ORCL are based on average analyst target price. Source: www.marketwatch.com
Questions?
Secturity
Hewlett Packard Co.*
Intel Corp.
Microsoft Corp.
Oracle Corp*
NCR Corp
Apple
Total
Price
34.35
15.72
20.89
19.59
10.74
135.81
Value (5/29/09)
$ 611,533.05
$ 438,588.00
$ 766,663.00
$ 752,647.80
$ 432,822.00
Gain/Loss
$ (228,754.31)
$ (177,209.00)
$ (252,094.92)
$ 88,295.58
$ (636,913.55)
Forecast
$ 42.00
$ 17.99
$ 27.91
$ 21.50
$ 13.89
$ 184.17
Upside Percent of Portfolio
22.27%
4.29%
14.44%
2.95%
33.60%
4.98%
9.75%
4.97%
29.33%
2.74%
35.61%
0.00%
Change New Allocation
-1.00%
3.29%
-0.50%
2.45%
-0.50%
4.48%
-0.50%
4.47%
0.00%
2.74%
2.50%
2.50%
19.92%
19.92%
*Forecast for HPQ and ORCL are based on average analyst target price. Source: www.marketwatch.com