Consumer Discretionary

Joshua Anderson

Kunal Arora

Branyan Booth

Joseph Chandraraj

Agenda

• Sector Recommendation Recap

• Stock Selected Overview

• Financial Analysis

• Valuation Analysis

• Stock Recommendation

(07/31/09) S&P 500 Weight SIM Weight +/-

Consumer Discretionary 9.11% 7.19% -1.92%

Consumer Staples 11.81% 11.65% -0.16%

Energy 12.04% 10.74% -1.31%

Financials 13.86% 8.93% -4.93%

Health Care 13.73% 13.30% -0.43%

Industrials 9.98% 12.37% 2.39%

Information Technology 18.72% 20.41% 1.69%

Materials 3.40% 4.98% 1.58%

Telecommunication Services 3.41% 3.39% -0.02%

Utilities 3.94% 3.61% -0.34%

Cash 0.00% 3.38% 3.38%

Sector Allocation Overview

SIM Current Stock Holdings

SecurityMkt Price (07/31/09)

Mkt Value(07/31/09)

Unrealized Gain/Loss

Price Target* Upside*

%age Portfolio (07/31/09)

%age Sector

(07/31/09)

Aéropostale 36.40 $150,150 $998 $38.05 4.53% 0.87% 12.09%

Best Buy 37.37 $300,642 ($86,982) $44.00 17.74% 1.74% 24.20%

Comcast 14.86 $389,332 ($41,341) $19.05 28.20% 2.25% 31.34%

GameStop 21.89 $139,002 ($21,751) $29.11 32.98% 0.80% 11.19%

McDonalds 55.08 $263,282 $2,116  $57.04  3.55% 1.52% 21.19%

Total 7.18% 100.00%

* Price Target: DCF analysis except Comcast from Yahoo Finance

Sector Recommendation – Recap

View Reason

Business Slightly Positive Mature, Low growth but global expansion can open new opportunities

Economic Negative Disposable Income Consumer SpendingSaving Rate Unemployment

Financial Negative Revenue growthMargins

Valuation Negative Over valued high P/E ratios

Recommendation: Hold the Underweight Position at 150bps

Stock Screening

• Consumer Discretionary Universe – 822– Price-to-Forward Earnings Below S&P 500– EBITDA margins above industry and sector– Net debt to Assets below 50%

• Stock Screening Results - 44– Review of Fundamentals

• In Depth Analysis – 4– Coach, Gymboree, Hasbro, GameStop

DCF ValuationsCompany Current Price

(08/04/09)Target Price Upside

Coach $29.31 $34.44 17.5%

Gymboree $39.87 $42.14 5.7%

Hasbro $26.37 $19.65 (25.6%)

GameStop $24.42 $29.11 19.2%

Aéropostale $36.21 $38.05 5.1%

McDonalds $55.01 $57.04 3.7%

Aéropostale in the SIM portfolio

• ARO outperformed the sector for most of the quarter

• ARO steadily reducing cash conversion cycle

• High revenue growth, competitive margins

• No long-term debt, average lease shorter

Aéropostale Now

• Lots of Press for increasing same-store sales for June

• P/S a little high, Forward P/E a little low, all others right on target

• Margins and Cash Flow/Share as high as ever

• Share buybacks increasingly important to meeting consensus forecasts

Aéropostale’s Future

• Averaged 17% revenue growth over the last 5 years. How quickly will it fall?

• Will PS from Aéropostale cannibalize Aéropostale’s sales or generate synergies between the brands?

• Has Aéropostale’s management learned from the failed Jimmy’Z experiment?

Coach Overview

• Designs & markets gifts for men & women, founded in 1941

• Primary products: handbags, footwear, wearables, business cases,

sunwear, watches, travel bags, and fragrance.

• Sells via company-operated stores, internet, catalog, and indirect

channels, such as department stores

• 324 retail stores & 106 factory stores in North America; 155

locations in Japan.

• 2009 Revenue $3.23 billion (2% increase from ‘08) 

Coach –Valuations (DCF)DCF Valuation:

-Current Price: $29.28; Target Price: $34.44; Upside: 17.6%

Key Assumptions:- 3 year revenue growth: 14%

- 5 year historical growth rate: 21%- Estimated long term growth rate 15%- China sales up in double digits, plan to open 15 stores this year and 50 stores over next 5 years- New Men’s store in Japan

-Terminal growth rate: 4.5%-Discount rate: 11%

Coach - Absolute Valuation

(7/31/09 Price 29.59) High Low Median CurrentTarget

Multiple

Target E,B,CF

per shareTarget Price

P/FE 30.0 7.9 22.9 15.3 19.1 $1.22 $23.30

P/B 14.1 3.1 10.3 5.9 8.1 $4.75 $38.51

P/S 8.2 1.5 6.5 2.8 4.65 $8.63 $40.15

P/CF 36.5 5.8 25.8 12.0 18.9 $1.22 $22.99

Average Target Price: $31.24

Coach - P/FE Relative to S&P500

Median 1.47

Coach - P/FE Relative to Sector

Median 1.21

Coach – P/S Ratio (Absolute)

Median 5.3

Coach Recommendations

  View Reason

Business Positive

- Strong market position and brand

- Robust Financial Performance

- Strong product portfolio

Financial Positive- Revenue, EPS, are going up relative to

consumer Discretionary

Valuation Positive- Target Price $33.80 (80/20 weight to

DCF), 15.5% upside and 1% div yield

Recommendation: Buy

Action Recommendation – Within Sector

Current Weight

In SIM Portfolio

Proposed Weight

In SIM PortfolioProposed Change

Aéropostale 0.87% 0% (0.87%)

Best Buy 1.74% 1.74% 0%

Comcast 2.25% 2.25% 0%

GameStop 0.80% 1.10% 0.30%

McDonalds 1.52% 1.22% (0.30%)

Coach 0% 0.87% 0.87%

Questions?