Consumer Discretionary
Company Presentation
Arshan Ameen
Brian Beck
Josh Bernath
Ryan Calloway
Bryan Chard
March 10, 2009 – FIN 724/824
Agenda
•
•
•
•
•
•
Review of Sector Presentation
Proposal
Abercrombie & Fitch
Best Buy
McDonald’s
Summary
Sector Presentation Review
•
•
•
•
Current SIM portfolio weighting is 10.84%
S&P’s weight is 8.31%
Currently overweight 253 bps
We recommended reducing the weight
in the SIM portfolio by 303 bps to
7.81% (or 50 bps underweight)
Consumer Discretionary vs. S&P 500: 10-Year
160
140
120
100
80
60
40
20
• Why underweight?
– Sector is cheap, and rightfully so, as it has
underperformed the S&P 500 for the past 10
years
• Relative to market, we still expect lower
returns for sector
– Sole bright spot for sector is that oil prices stay at
current levels
– Risks going forward:
• Unemployment rises (high probability)
• Further deterioration in consumer spending
(high probability)
– Consumer confidence and sentiment remain at
historical lows
0
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Feb-04
Consumer Discretionary
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
S&P 500
Consumer Discretionary vs. S&P 500: YTD
105
100
95
90
85
80
75
Dec-08
Jan-09
Jan-09
Jan-09
Jan-09
Jan-09
Consumer Discretionary
Feb-09
Feb-09
S&P 500
Feb-09
Feb-09
Mar-09
Current SIM Composition
As of 6-Mar-2009 close
Company
Abercrombie & Fitch
Best Buy
Comcast
TOTAL
•
Ticker
ANF
BBY
CMCSA
Value
$295,581
602,924
304,706
$1,203,211
Portfolio
Weighting (bps)
266
543
275
1084
Class voted to reduce our position by 303 bps or 50 bps underweight
the S&P 500
Our Proposal
Company
Abercrombie & Fitch
Best Buy
Comcast
McDonald's
TOTAL
Current
Weight (bps)
266
543
275
0
1084
Current SIM Weighting
A&F
25%
Buy / Sell
Sell all - 266 bps
Sell - 275 bps
Hold
Buy - 238 bps
Proposed
Weight (bps)
0
268
275
238
781
Proposed SIM Weighting
McDonald's
31%
Best Buy
50%
Comcast
25%
Best Buy
34%
Comcast
35%
Abercrombie & Fitch (ANF)
•
•
ANF offers casual sportswear apparel under Abercrombie & Fitch,
abercrombie, Hollister, and RUEHL brands. The company also operates
Gilly Hicks branded stores for women
ANF targets teenagers and young adults through 1,035 stores in the U.S.,
Canada, and the United Kingdom, as well as websites and catalogue
Abercrombie & Fitch
Industry
Apparel Stores
Current Price (US$)
52-Week Range (US$)
Market Capitalization (m, US$)
Beta
P/E (ttm)
Dividend Yield
17.49
13.66 - 80.50
1,520.0
1.33
5.74
3.20%
52-Week Change
S&P 500 52-Week Change
YTD Return
(75.23)%
(47.16)%
(24.19)%
McDo
Business Analysis: ANF
•
Upsides
– 4Q results demonstrate that management is actively managing expenses, while
at the same time protecting the brand for the long term
– On the doorstep of becoming a truly international brand
• U.K. expansion is posting strong results
– Do not drive business with promotion, it is driven by fashion and in-store
experience  Preserves brand
•
Downsides
– Visibility is low with no sales or EPS guidance from 4Q earnings call
– Selling and macro environment remains weak
– Opened 90 new domestic stores in 2008 and seven internationally; and is only
planning nine new domestic stores and six international in 2009
– U.S. malls are suffering
– Management’s focus is on long-term positioning, while sacrificing shortterm performance  Sell
Financial Analysis: ANF
DuPont Analysis
2008
2007
2006
2005
2004
Margin Asset
%
Turnover
20.25
1.56
20.25
1.64
19.73
1.75
17.46
1.45
19.61
1.32
Leverage
1.59
1.68
1.91
1.83
1.63
Quarterly Mean Estimates
EPS
Mean
High
Low
ROE
%
31.47
35.18
41.12
31.63
25.7
Q1
Apr
0.04
0.14
-0.15
Annual Mean Estimates
EPS
Mean
High
Low
FY1
2009
1.79
2.25
1.22
IS RATIOS
Gross Profit Margin (%)
Net Profit Margin Adjusted (%)
Return on Average Total Equity (%)
Return on Average Assets (%)
2008
66.97
12.69
31.47
19.76
2007
66.57
12.72
35.18
20.91
2006
66.49
12.29
41.12
21.55
2005
66.36
11.95
31.63
17.32
2004
63.42
11.99
25.7
15.8
BS RATIOS
Cash Items/Total Capital (%)
Quick Ratio
Current Ratio
Net Working Capital ($Mil)
Asset Turnover
2008
40.07
1.29
2.1
597
1.56
2007
37.7
1.12
2.14
581
1.64
2006
46.41
1.02
1.93
456
1.75
2005
50.61
0.88
1.56
242
1.45
2004
60.75
1.7
2.42
442
1.32
Q2
Jul
0.29
0.48
-0.05
FY2
2010
2.19
3.00
1.38
Q3
Oct
0.42
0.58
0.22
FY3
2011
2.45
2.72
2.20
Q4
Jan
1.02
1.36
0.63
Financial Analysis: ANF
• Trend is down for every
metric, which we
expect to continue
through 2009
ABERCROMBIE & FITCH COMPANY (ANF) Price 17.49
1999
2000
2001
2002
2003
2004
2005
2006
2007
StockVal®
2008
2009
2010
16
HI
LO
ME
CU
14
12
14.0
8.5
12.3
8.5
10
04-30-1999
01-31-2009
8
NET PROFIT MARGIN ADJUSTED %
200
HI
LO
CU
GR
110
60
98.6
-79.3
-52.4
-7.2%
40
03-05-1999
03-06-2009
20
TOTAL RETURN %
50
HI
LO
ME
CU
40
30
71.3
17.2
33.1
17.2
20
04-30-1999
01-31-2009
10
RETURN ON EQUITY %
10
HI
5.26
LO
1.03
ME
2.10
CU
3.38
GR 12.9%
4
2
04-30-1999
01-31-2009
1
EARNINGS-PER-SHARE
Valuation Analysis: ANF
Discounted Cash Flow Analysis
Year
2008E
Free Cash Flow
YOY growth
Terminal Value
NPV of free cash flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
234,683
1,584,968
1,346,119
510,317
1,856,437
12.64%
Shares Outstanding
$
17.49
Implied equity value/share
$
20.28
Cash
Debt
2010E
2011E
2012E
275,033
17%
221,634
-19%
217,408
-2%
224,711
3%
233,663
4%
Terminal Discount Rate =
Terminal FCF Growth =
12.0%
3.0%
73%
27%
243,785
4%
2015E
2016E
2017E
2018E
255,880
5%
268,237
5%
281,590
5%
138,492
-51%
91,523.0
Current Price
Upside/(Downside) to DCF
Forecast
2013E
2014E
2009E
15.97%
50
6,182
Slight upside, but there are
better opportunities in the
sector over the next twelve
months
Terminal
P/E
EV/EBITDA
Free Cash Yield
Terminal
Value
1,584,967.8
5.0
3.18
8.74%
Best Buy (BBY)
•
•
•
BBY is the leading consumer electronics retailer in the U.S.
It operates 923 Best Buy stores, 19 Pacific Sales showrooms, 13 Magnolia Audio Video stores,
nine Best Buy Mobile stand-alone stores and seven Geek Squad stand-alone stores in the U.S.
The Company also operates 51 Canada Best Buy stores, 131 Future Shop stores in Canada, 160
Five Star stores in China, and one Best Buy China store
Best Buy
Industry
Electronics Stores
Current Price (US$)
52-Week Range (US$)
Market Capitalization (m, US$)
Beta
P/E (ttm)
Dividend Yield
26.02
16.42 - 48.03
10,220.0
1.33
8.94
1.90%
52-Week Change
S&P 500 52-Week Change
YTD Return
(38.02)%
(47.16)%
(12.10)%
Business Analysis: BBY
•
Upsides
–
–
–
–
•
Best-of-class U.S. consumer electronics retailer with knowledgeable sales staff and digital
product focus
Circuit City bankruptcy will likely increase market share
Opening stores in Europe, which will bear long-term fruit
Initiatives, such as Geek Squad, Best Buy Mobile and Apple Store within-a-store differentiate
BBY in a competitive marketplace
Downsides
–
–
Consumer spending and Disposable personal income are correlated to stock price, these are
likely to get worse before they get any better
Management is taking action to cut back investment spending in business, specifically by
approximately 50 percent vs. previous year  Fewer new store openings both domestically
and internationally
Financial Analysis: BBY
DuPont Analysis
2008
2007
2006
2005
2004
Leverage is an
unfavorable
method of
increasing
ROE, unless
you’re KKR
Margin
Asset
%
Turnover
5.72
3.04
6.01
2.83
5.68
2.78
5.42
2.9
5.41
3
Leverage
2.46
2.22
2.28
2.41
2.66
Annual Mean Estimates
EPS
Mean
High
Low
ROE
%
26.11
23.86
23.49
24.32
26.01
FY1
2009
2.62
2.78
2.5
FY2
2010
2.39
2.95
1.67
IS RATIOS
Gross Profit Margin (%)
Net Profit Margin Adjusted (%)
Return on Average Total Equity (%)
Return on Average Assets (%)
2008
23.85
3.49
26.11
10.6
2007
24.4
3.8
23.86
10.75
2006
25.05
3.7
23.49
10.29
2005
23.68
3.49
24.32
10.1
2004
23.92
3.26
26.01
9.79
BS RATIOS
Cash Items/Total Capital (%)
Quick Ratio
Current Ratio
Net Working Capital ($Mil)
Long-Term Debt/Equity (%)
Total Debt/Total Assets (%)
Asset Turnover
2008
29.16
0.3
1.08
573
13.98
6.4
3.04
2007
55.57
0.69
1.44
2780
9.51
4.79
2.83
2006
69.71
0.7
1.32
1929
3.39
5.02
2.78
2005
67.27
0.75
1.39
1944
11.87
5.83
2.9
2004
66.6
0.65
1.27
1223
14.09
9.82
3
FY3
2011
2.58
3.02
1.36
Mean EPS
expectations
indicate
contraction in
2009 and 2010
Unfavorable
trend given
that sales
may remain
under
pressure
Financial Analysis: BBY
• BBY shows strong
returns when
consumers are
spending and the
economy is doing well
BEST BUY COMPANY INCORPORATED (BBY) Price 24.71
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
StockVal®
2009
2010
5
HI
LO
ME
CU
4
4.1
2.4
3.4
2.9
3
05-31-1999
11-30-2008
2
NET PROFIT MARGIN ADJUSTED %
290
• This will occur, just not
in the near-term, thus
we are reducing our
exposure
HI
LO
CU
GR
180
110
189.5
-51.5
31.7
2.8%
70
03-05-1999
03-06-2009
40
TOTAL RETURN %
40
HI
LO
ME
CU
35
30
38.3
22.1
25.2
27.2
25
05-31-1999
11-30-2008
20
RETURN ON EQUITY %
3.6
HI
3.21
LO
0.52
ME
1.61
CU
2.95
GR 19.9%
2.0
1.2
0.8
05-31-1999
11-30-2008
0.4
EARNINGS-PER-SHARE
Valuation Analysis: BBY
Discounted Cash Flow Analysis
Year
2007
2008
2009
2010
2011
2012
Free Cash Flow
YOY growth
861
780
-9%
870
12%
890
2%
1,041
17%
1,208
16%
25,154
6,724
8,859
15,583
5.53%
Current Price
$
24.71
Implied equity value/share
$
34.41
Upside/(Downside) to DCF
43%
57%
Shares Outstanding (M)
Cash
Debt
1,438
1,465
Terminal Disc. Rate =
Terminal FCF Growth =
11.0%
4.0%
1,303
8%
2014
2015
2016
2017
1,414
8%
1,511
7%
1,618
7%
1,693
5%
Terminal
P/E
EV/EBITDA
Free Cash Yield
452.9
Terminal
Value
25,154.4
12.2
5.73
6.73%
39.24%
Terminal FCF
Growth Rate
Terminal Value
NPV of free cash flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Forecast
2013
0%
1%
2%
3%
4%
5%
8%
57%
71%
89%
114%
152%
215%
9%
37%
47%
59%
76%
99%
134%
10%
21%
28%
37%
49%
64%
85%
Discount Rate
11%
12%
9%
-2%
14%
2%
20%
7%
29%
13%
39%
21%
53%
30%
13%
-11%
-8%
-4%
1%
6%
13%
14%
-19%
-16%
-13%
-10%
-5%
0%
15%
-25%
-23%
-21%
-18%
-15%
-11%
Valuation Analysis: BBY
Absolute Valuation: BBY
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
46.90
1.53
16.50
32.10
49.60
Low
7.20
0.18
1.60
2.70
4.00
Mean
18.20
0.73
5.10
10.70
14.80
Current
11.80
0.27
2.60
4.40
6.60
Average
Target
Price
$39.15
56.17
48.60
34.64
25.09
$40.73
12-Month Target Price Calculation
DCF: $34.41
Multiples: $40.73
Target
Target x
Multiple per share
15.00
2.61
0.70
81.00
4.50
10.80
8.00
4.33
13.00
1.93
$37.57
Equal Weighting
44.4 percent Upside
McDonald’s (MCD)
•
•
MCD franchises and operates McDonald’s restaurants in more than 100 countries
globally. The restaurants are either operated by the Company or by franchisees
Current focus is on alignment around five factors known as “Plan to Win”
–
(1) Menu Variety and Beverage Choice; (2) Better Restaurant Operations; (3) Customer Convenience; (4)
Everyday Predictable Low Prices; and (5) Ongoing Restaurant Reinvestment
McDonald's
Industry
Restaurants
Current Price (US$)
52-Week Range (US$)
Market Capitalization (m, US$)
Beta
P/E (ttm)
Dividend Yield
52.12
45.79 - 67.00
58,040.0
0.80
13.85
3.80%
52-Week Change
S&P 500 52-Week Change
YTD Return
(0.29)%
(47.16)%
(16.19)%
Gam
Business Analysis: MCD
•
Upsides
–
Resilience
•
–
–
In November 2008, opened one-thousandth store in China – fastest market to reach that number of
stores
Opening 1,000 new stores in 2009 in a weak real estate market
•
–
•
165 in United States; 245 in Europe; 475 in Asia-Pacific, Middle East and Africa
Large portion of capital expenditures are being spent on store re-imaging, which is improving customer
perceptions and driving sales
•
–
One of only two names within the Dow 30 to experience stock price appreciation in 2008
7,000 McCafe’s by mid-2009 and these investment projects are meeting management’s expectations
Negative correlation with Consumer Confidence and Consumer Sentiment; and no correlation with
Unemployment and Disposable Personal Income
Downsides
–
–
Commodity markets are volatile, which could impact suppliers’ prices
FX volatility has made it nearly impossible to predict the potential impact with much certainty
•
FX negatively impacted fourth quarter 2008 EPS by 7 cents – all due to the strengthening dollar
McDonald’s Comparable-Store Sales and Operating Income Growth
U.S.
Europe
Asia Pacific, Middle East and Africa
Change in
Comparable
Restaurant Sales
4th Quarter
5.0%
7.6%
10.0%
Change in
Comparable
Restaurant Sales
2008
4.0%
8.5%
9.0%
Operating Income
Growth for
Quarter
11.0%
13.0%
38.0%
Operating Income
Growth for
2008
8.0%
17.0%
28.0%
Financial Analysis: MCD
DuPont Analysis
2008
2007
2006
2005
2004
ROE increases
largely driven
by expanding
profit margins
Margin
Asset
%
Turnover
28.4
0.81
17.51
0.78
21.83
0.71
21.03
0.66
19.9
0.67
Leverage
2.02
1.9
1.93
1.97
2.05
ROE
%
29.34
23.05
19.39
17.16
18.78
Annual Mean Estimates
EPS
Mean
High
Low
FY1
2009
3.84
3.99
3.68
IS RATIOS
Gross Profit Margin (%)
Net Profit Margin Adjusted (%)
Return on Average Total Equity (%)
Return on Average Assets (%)
2008
36.73
17.87
29.34
14.53
2007
34.69
15.55
23.05
12.14
2006
33.18
14.2
19.39
10.07
2005
32.31
13.17
17.16
8.71
2004
33
13.74
18.78
9.16
BS RATIOS
Cash Items/Total Capital (%)
Quick Ratio
Current Ratio
Net Working Capital ($Mil)
Asset Turnover
2008
8.75
1.18
1.39
980
0.81
2007
8.77
0.67
0.8
-917
0.78
2006
8.92
0.99
1.76
2241
0.71
2005
17.69
1.23
1.51
2111
0.66
2004
6.12
0.6
0.81
-663
0.67
FY2
2010
4.19
4.38
4.00
FY3
2011
4.52
4.73
4.24
Mean
expectations
indicate a 3-Year
EPS CAGR of 8.5
percent
MCD is generating
more earnings
from its assets
Financial Analysis: MCD
• Metrics are all trending
upwards
MCDONALDS CORPORATION (MCD) Price 52.12
1999
2000
2001
2002
2003
2004
2005
2007
2008
2009
2010
18
HI
LO
ME
CU
16
• Profit margins and
Earnings-per-share are
hitting 10-year highs
amidst the economic
slowdown
2006
StockVal®
14
17.9
10.9
13.7
17.9
12
03-31-1999
12-31-2008
10
NET PROFIT MARGIN ADJUSTED %
160
HI
LO
CU
GR
100
60
30
51.4
-71.0
24.6
2.2%
03-05-1999
03-06-2009
20
TOTAL RETURN %
36
HI
LO
ME
CU
30
24
30.3
15.1
19.2
30.3
18
03-31-1999
12-31-2008
12
RETURN ON EQUITY %
10
HI
3.67
LO
1.29
ME
1.51
CU
3.67
GR 11.3%
4
2
03-31-1999
12-31-2008
1
EARNINGS-PER-SHARE
Valuation Analysis: MCD
Discounted Cash Flow Analysis
Year
2009E
2010E
2011E
2012E
2013E
Forecast
2014E
2015E
Free Cash Flow
YOY growth
5,266
5,068
-4%
5,654
12%
7,011
24%
8,086
15%
9,242
14%
Terminal Value
NPV of free cash flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
156,531
47,883
36,113
83,996
6.27%
Shares Outstanding
1,200.0
Current Price
$
52.50
Implied equity value/share
$
70.00
Upside/(Downside) to DCF
33.33%
Cash
Debt
2,063
10,816
57%
43%
Terminal Discount Rate =
Terminal FCF Growth =
13.0%
3.0%
10,519
14%
2016
2017E
2018E
2019E
11,782
12%
12,978
10%
14,170
9%
15,197
7%
Terminal
P/E
EV/EBITDA
Free Cash Yield
Terminal
Value
156,530.5
10.6
7.03
9.71%
Valuation Analysis: MCD
Terminal Discount rate
Sensitivity Table for DCF
10%
10.50%
11%
11.50%
12%
12.50%
13%
13.50%
14%
5%
4.50%
149.85% 134.47%
125.14% 112.95%
104.66% 94.84%
87.42% 79.42%
72.73% 66.12%
60.07% 54.56%
49.05% 44.42%
39.38% 35.46%
30.83% 27.49%
Terminal FCF Growth
4%
3.50%
3%
121.66% 110.82% 101.53%
102.64% 93.80% 86.14%
86.43% 79.14% 72.77%
72.48% 66.41% 61.05%
60.35% 55.25% 50.71%
49.71% 45.39% 41.53%
40.31% 36.64% 33.33%
31.96% 28.81% 25.95%
24.49% 21.77% 19.30%
2.50%
93.48%
79.44%
67.14%
56.29%
46.66%
38.06%
30.33%
23.36%
17.04%
2%
86.44%
73.52%
62.14%
52.03%
43.01%
34.91%
27.61%
20.99%
14.98%
Valuation Analysis: MCD
Comparative Multiples Analysis
Absolute Valuation
P/Forward E
PEG Ratio
P/Adjusted Cash Flow
P/Sales
P/EBITDA
High
Low
Mean
Current
Target
Multiple
33.70
2.80
25.00
5.36
18.50
8.90
1.00
6.00
1.13
5.20
15.70
1.80
12.60
2.60
9.00
13.50
1.50
11.00
2.54
7.50
15.70
1.80
12.60
2.60
9.00
Target x
Per Share
Target
Price
4.52
35.00
5.19
21.60
7.00
$70.96
63.00
65.39
56.16
63.00
Average
$63.70
12-Month Target Price Calculation
DCF: $70.00
Multiples: $63.70
$66.85
Equal Weighting
27.3 percent Upside
Summary
• Buy:
– 238 bps of McDonald’s
• Sell:
– Entire position in Abercrombie & Fitch
– 275 bps of Best Buy
What questions do you have?
GameStop (GME)
•
•
GameStop is the world's largest video game and entertainment software retailer, offering new and
used video games
The company operates 6,207 retail stores in 17 countries worldwide. The company also operates
two e-commerce sites, GameStop.com and EBgames.com, and publishes Game Informer
magazine, a leading multi-platform video game publication
GameStop
Industry
Electronics Retail
Current Price (US$)
52-Week Range (US$)
Market Capitalization (m, US$)
Beta
P/E (ttm)
Dividend Yield
22.38
16.91 - 59.13
3,670.0
1.40
10.54
0.00%
52-Week Change
S&P 500 52-Week Change
(47.56)%
(47.16)%
Business Analysis: GME
•
Upsides
–
–
–
–
•
New hardware sales grew 29 percent in January, led by Nintendo’s WII, DS and Microsoft’s Xbox 260
Business model set up so consumers trade in old video games and immediately purchase new games 
GameStop provides the currency, attractive in tough economy
Recently acquired Micromania, the largest retailer of video games in France with 332 stores and now have
an extremely well positioned company in the second largest European market
Based on GameStop's view that the U.S. and European markets each have a potential to absorb
approximately 7,000 stores, we believe the market is far from saturated
Downsides
–
Amazon just announced it will be introducing a competing trade-in video game platform via the internet
•
•
–
GameStop’s CEO says, "...While customers wanted to buy a new game, say, Killzone 2, they weren't going to wait the
week or two weeks it took to get the credit, then buy Killzone 2. They want Killzone 2 the day it comes out. They need the
money and the credit right now."
Consumers have an immediacy for currency when they want a video game, Amazon’s platform does not provide that
Potential impact of lower consumer spending, although correlation is only .09 with Disposable Personal
Income
Analysis of New Used-Game Competition
Super Smash Bros Brawl
Street Fighter IV
Skate 2
Call of Duty: World at War Final Fronts
Mario Kart DS
Wii
PS3
360
PS2
DS
Trade-in Values
Amazon.com
GameStop.com
$22.00
$20.00
33.00
30.00
26.50
24.00
18.50
17.00
16.50
15.00
Financial Analysis: GME
DuPont Analysis
2008
2007
2006
2005
2004
Margin
Asset
%
Turnover
7.09
1.99
6.37
1.67
6.16
1.57
5.48
2.03
6.7
1.85
Annual Mean Estimates
EPS
Mean
High
Low
FY1
2009
2.4
2.41
2.37
Leverage
2.2
2.56
2.37
1.6
1.5
ROE
%
18.31
13.36
13.84
11.32
11.11
FY2
2010
2.84
3
2.7
FY3
2011
2.97
3.1
2.71
ROE is
growing, mostly
driven by profit
margins and
higher turnover
Leverage is
declining,
which is good
in a tough
economic
environment
Mean EPS
expectations
are increasing
steadily
through 2011
Financial Analysis: GME
• Profit margin increasing
as revenue shifts
towards used games
• Total return trending
upward
• Return on equity and
Earnings-per-share
have stayed strong
during the recession
GAMESTOP CORPORATION (GME) Price 22.38
1999
2000
2001
2002
2003
2004
2005
2006
StockVal®
2007
2008
2009
2010
6
HI
LO
ME
CU
4
4.5 
-1.2
3.4
4.4
2
01-31-2001
10-31-2008
0
NET PROFIT MARGIN ADJUSTED %
630
HI
524.2 
LO
-60.2
CU 124.9
GR 12.2%
290
140
60
02-15-2002
03-06-2009
30
TOTAL RETURN %
40
HI
LO
ME
CU
32
24
100.0 
9.5
12.2
17.9
16
01-31-2001
10-31-2008
8
RETURN ON EQUITY %
3
HI
LO
ME
CU
GR
2
1
2.17 
-0.13
0.57
2.13
NMN
0
01-31-2001
10-31-2008
-1
EARNINGS-PER-SHARE
Valuation Analysis: GME
Discounted Cash Flow Analysis
DCF Valuation
3/7/2009
Terminal Discount
Rate =
Terminal FCF
Growth =
Ticker: GME
Bryan Chard
11.5%
3.5%
Forecast
Year
Revenue
2009E
8,800,000
% Growth
Operating Income
Operating Margin
Interest - net
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
YOY growth
9,680,000
10.00%
660,000
7.50%
46,640
0.53%
220,810
36.0%
392,550
% Growth
Add Depreciation/Amort
2010E
750,200
7.75%
51,304
0.53%
251,603
36.0%
447,293
2011E
10,502,800
8.50%
813,967
7.75%
55,665
0.53%
272,989
36.0%
485,313
2012E
11,237,996
7.00%
865,326
7.70%
55,665
0.50%
291,478
36.0%
518,183
2013E
11,968,466
6.50%
897,635
7.50%
55,665
0.47%
303,109
36.0%
538,861
2014E
12,686,574
6.00%
926,120
7.30%
55,665
0.44%
313,364
36.0%
557,091
Terminal
2015E
2016E
13,384,335 14,053,552
5.50%
950,288
7.10%
55,665
0.42%
322,064
36.0%
572,559
5.00%
969,695
6.90%
55,665
0.40%
329,051
36.0%
584,979
2017E
14,685,962
4.50%
983,959
6.70%
55,665
0.38%
334,186
36.0%
594,109
2018E
15,273,400
4.00%
992,771
6.50%
55,665
0.36%
337,358
36.0%
599,748
2019E
15,807,969
3.50%
1,027,518
Value
Terminal Value
NPV of free cash flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
8,558,233
3,270,135
2,317,852
5,587,987
6.37%
Shares Outstanding
167,995.0
6.50%
55,665
0.35%
349,867
Current Price
$
22.38
Implied equity value/share
$
33.26
36.0%
621,986
14%
9%
9%
8%
7%
6%
5%
4%
4%
4%
130,270
145,200
157,542
168,570
179,527
190,299
200,765
210,803
220,289
229,101
237,120
1.48%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
39,520
8,268
23,760
27,903
28,095
29,921
31,716
33,461
35,134
36,715
38,184
0.09%
0.25%
0.27%
0.25%
0.25%
0.25%
0.25%
0.25%
0.25%
0.25%
0.25%
175,000
145,200
157,542
168,570
179,527
190,299
200,765
210,803
220,289
229,101
237,120
1.99%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
356,088
471,053
513,216
546,278
568,782
588,808
606,020
620,113
630,823
637,931
661,506
32%
9%
6%
4%
4%
3%
2%
2%
1%
4%
Upside/(Downside) to DCF
48.63%
Valuation Analysis: GME
80.0%
70.0%
Average Upside
34.7% Upside
60.0%
50.0%
13% Terminal Discount with
2.5% Terminal FCF Growth
21.2% Upside
40.0%
30.0%
20.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
10.0%
0.0%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
MCD 5-Yr Price Performance