Outline of Sector Analysis and Deliverables
Sector and Sub-Sector Report and Presentation
A. General comments about the sector work.
Each sector team is free to divide and conquer the process of building a sector report
however seems best. The overall summary and assessment of the sector should be a
consensus. Sub-sectors can be separated and attacked individually or in pairs. Attribute
the work to whoever has had meaningful input. Just put names by the separate work
being handed in. Individual security recommendations (buy, sell or hold) will generally
be done in pairs. The sector presentation should be organized so that everyone
participates.
Reality Check: “Economic sectors are amorphous constructs that defy explicit
decomposition and exact categorization. Many firms cut across sector boundaries,
however boundaries are drawn. Think of sectors and sub-sectors not as bins, in which
each firm has its spot, but rather as points of aggregation on an infinite, multidimensional
continuum of input, output and production characteristics.” (ha ha)
With this “reality” in mind …
Goals for this assignment:
 Begin to organize the sector for which you are responsible.
 Attempt a partitioning of your sector into several meaningful sub-sectors.
 Identify 3-4 individual publicly-traded companies in each sub-sector
including the relevant companies in the COX portfolio.
 Complete a comparable company analysis for each sub-sector group.
 Complete sector reports and prepare 3-5 slides to use in a brief 10-15
minute presentation to the class.
Description of the Deliverables to be Submitted by each sector team:
1.
Provide a brief written description of your sector and meaningful sub-sectors.
For example, if you are responsible for the healthcare sector, then write a
paragraph describing the overall healthcare sector as well as a paragraph
describing each of the various sub-sectors you have identified as being a
component of healthcare (i.e. a paragraph for the healthcare devices subsector, a paragraph for the healthcare services sub-sector, a paragraph for the
pharmaceutical sub-sector and a paragraph for any other chosen sub-sectors
within the healthcare major sector.) Keep the number of sub-sectors roughly
in balance with the number of analysts and Cox holdings in the sector as
described below.
2. Create a page for each Cox holding in your sector. Start with a written
description of the company, linking it to one of the sub-sectors. Next list at
least four companies that might serve as representative (comparable) firms
from the same sub-sector. If there is more than one Cox holding in a subsector, pool the holdings together with at least four other companies. Let the
Cox holdings help define your sub-sectors. Wells Fargo has a natural subsector of regional banking although it has geographic areas of concentration
so that it isn’t perfectly comparable to, say, Synovis. Stericycle is more
challenging. Is it a healthcare stock or an industrial waste company? Last
year’s class split it across industries. Call each Cox holding as you see it and
consult across sectors if necessary. Be careful that a stock doesn’t completely
fall through the cracks somehow.
3. Describe in broad terms some of the areas within the sector that are not
currently covered by a Cox holding.
4. Complete the profile analysis for each of your Cox holdings as well as the
associated comparable firms. This creates a “comp sheet” for the Cox
holding. As needed, add footnotes with comments you have about a data
point such as your source of information and whether there are qualifiers to
the information.
5. Compare and contrast from a qualitative perspective the general business
model for each of the sub-sectors. For example, you might state that the
hardware sub-sector of technology is characterized by high volume yet
relatively low gross margins as compared to the software sub-sector within
technology is characterized by lower volume yet relatively higher gross
margins. At this time you are not concerned with the nuances of the business
models for individual companies just the general business models for each of
the sub-sectors.
6. Maintain a bibliography of sources and web sites.
7. Submit a full sector report organized using something like the suggested
outline below.
B. Documentation Outline for Sector Overview
‘
i. Report
a. Executive Summary (Address Pos. & Neg. Attributes For
Each Sub-Sector also address valuation in broad terms)
b. Sector and Sub–sector Market Definitions
c. Market Outlook – Qualitative and Quantitative
d. General Sector Business Model Summary
e. Comparable Company Analysis for each sub-sector where
there is a Cox holding.
ii. Sector Slides 3-5 slides summarizing the sector report – use graphs
and tables where necessary
PLEASE SAVE ALL SUBMITTED WORK AS IT WILL BE USED LATER IN THE
SEMESTER IN YOUR SECTOR AND ANALYST REPORTS.
II. Sell and Hold Reports and Presentations
A. Background work: Goals for this phase:
 To brainstorm about both the positive and negative attributes for each Cox
holding vis à vis it’s own sub-sector and the sector in general.
 To identify holdings with the greatest prospect for a sell recommendation and
sub-sectors with the greatest prospect for future buy recommendations. Note, the
work for the Buy idea will be completed in the Spring semester but it is wise to be
thinking about possible future Buy ideas throughout the course of the fall
semester.
 Think critically about the business models, market outlook, and valuation for your
Sell and Hold recommendations.
 Consider how you might conduct third-party due diligence to help facilitate your
Sell and/or Hold decisions.
 Summarize all of your Qualitative and Quantitative work thus far for your Sell
and Hold Recommendations and develop the key Investment Thesis points.
At this point, you should be able to:
1.
Compare and contrast each of the sub-sectors based on the work you have
completed thus far. Address both fundamentals (i.e. growth characteristics,
qualitative value drivers, business model issues) as well as valuation and risk.
Also address the qualitative issues such as the major positive and / or negative
trends that you see in that sub-sector. If there is a current portfolio holding in
that sub-sector, address your current thoughts for that holding and the
direction you are headed speaking to both fundamental and valuation issues.
2.
Summarize your thinking so you can describe each name in these terms:
Sub-Sector
Cox Holding
Sell, Hold , Add
Overarching Rationale (sub-sector and individual stock)
Summary of Fundamentals
Summary of Valuation
3.
Attempt some primary research. Good analysts identify customer, supplier
and competitor contacts for each sub-sector they follow. See if you can
engage in some dialogue with a “contact” within the sub-sector of a potential
sell recommendation. Contacts are helpful in corroborating external
assessments of a market.
4.
Identify Investment Thesis Points for the Sell/hold recommendation–
Drivers that could decelerate the future growth of the market
beyond consensus: e.g. Price Competition or Negative
Sector/Market trends
Drivers that could decelerate revenue growth beyond consensus
Drivers that will possibly increase costs beyond consensus
Drivers that decrease the value of assets beyond consensus
Drivers that will possibly increase the value of liabilities beyond consensus
Weak Points from the Profile Analysis and comp. sheet.
Factors that might cause multiple compression in the future.
B. Prepare final Sell and/or Hold Report: Goals:


Complete Sell and/or Hold reports, patterned after your favorite reports seen in
class or elsewhere – refer to the Analyst Report Scorecard for additional guidance
along with the best practice handout.
Prepare 4-6 slides for Sell recommendations and 2-3 slides for Hold
recommendations to use as visual aids for your class presentations.
III. Buy Recommendation
Repeat steps used for Sell/Hold Recommendations. However, it is suggested that for the
Buy Recommendations that you supplement your due diligence efforts with additional
contacts and/or resources to further substantiate your decision. Additionally, the report
outline for the Buy Recommendation is more detailed as shown below.
B. Buy Recommendation Documentation Outline
i. Company Buy Recommendation Report
a. Cover and Summary Statistics Page
b. Table of Contents
c. Company Description
d. Investment Highlights and Risks
e. Market Overview
f. Competition – see notes below
1. Competitive Factors
2. Ranking based on competitive factors checklist
g. Products and Services
h. Business Model Overview
i. Customers
j. Due Diligence Summary
k. Valuation
1. Summary and Methodology
2. Detailed Comparable Company Analysis
3. P/E to Growth Rate
4. Earnings Forecast
5. Ratio Analysis
6. Discounted Cash Flow Analysis
7. Dividend Discount Model (if warranted)
8. Trailing P/E Analysis (if warranted)
The competitive factors matrix is used to highlight a particular company’s
strengths and weaknesses relative to its peer groups. The competitive factors are
more qualitative rather than quantitative in nature. Competitive factors are factors
that a potential customer might look at when evaluating a vendor’s products and
services. In completing the matrix, we suggest reading the “Competition” section
of the 10-K filings of each of the companies in question. Below is an
oversimplified example of a competitive factors matrix for Best Buy.
Value Proposition
Price
Selection
Service
Product Quality
Best Buy
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Circuit City
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Wal-Mart
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