Consumer Staples Sector Presentation Des Dudaney Erica Elsasser Neil Hertenstein Mun Ye See Tho...
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Transcript of Consumer Staples Sector Presentation Des Dudaney Erica Elsasser Neil Hertenstein Mun Ye See Tho...
Consumer StaplesSector Presentation
Des DudaneyErica ElsasserNeil HertensteinMun Ye See Tho
April 27th, 2010
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
1. Size and Composition2. Business Analysis3. Economic Analysis4. Financial Analysis5. Valuation Analysis6. Recommendations
Table of Contents
Size & Composition
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Market Capitalization
• S&P 500 = $10,768,340 million• Consumer Staples = $1,185,205 million• CS Sector accounts for 11.01% of S&P500• CS Sector accounts for 11.77% of SIM portfolio
Size & Composition
Energy11.03%
Materials3.46%
Industrials10.59%
Con Disc10.30%
Con Stap11.01%Health Care
11.74%
Financials16.60%
Info Tech19.14%
Telecom2.73%
Utilities3.41%
S&P 500 Energy10.10%
Materials1.80%
Industrials13.03%
Con Disc9.53%
Con Stap11.77%
Health Care
15.27%
Financials11.93%
Info Tech19.87%
Telecom3.62%
Utilities1.88% Cash
1.14%Dividends
0.06%
SIM Portfolio
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Sector Industries
Agricultural Products
Brewers
Distillers & Vintners
Drug Retail
Food Distributors
Food Retail
Household Products
Hyper Markets & Super Centers
Packaged Foods & Meats
Personal Products
Soft Drinks
TobaccoSize & Composition
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Top Companies in Sector
203.4
182.55
126.71
103.8395.44
0
50
100
150
200
250
Wal-Mart Proctor&Gamble Coca Cola Pepsi Phillip Morris
Total Market Cap of these 5 companies is 60% of sector
Size & Composition
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
CS Sector vs. SP500 YTD
---- Staples---- S&P
Size & Composition
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
CS Sector vs. Other Sectors YTD1st: Industrials = 15.52%
2nd: Consumer Discretionary = 15.07%
3rd: Financials = 13.49%
4th: Info Tech = 5.07%
5th: Consumer Staples = 4.74%
6th: Materials = 3.52%
7th: Energy = 3.33%
8th: Health Care = 1.28%
9th: Utilities = -4.12%
10th: Telecom = -6.41%Size & Composition
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
QTD Performance
SP500 = 1.94%
1st: Cons Disc = 4.56%
2nd: Info Tech = 3.35%
3rd: Energy = 3.24%
4th: Industrials = 2.73%
5th: Financials = 2.41%
6th: Materials = 1.09%
7th: Utilities = .51%
8th: Cons Stap = -.28%
9th: Telecom = -.8%
10th: Health Care = -1.57%
Size & Composition
Business Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Life Cycle
Domestic
Intern
ationa
l
Business Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Sector Overview
Defensive Sector Stable returns and non-cyclical
Performs well in recessionary environment and not as well in expansionary environment (relative to other sectors)
Inelastic demand Consumer needs drive the sector
Consumers will need food and personal products regardless of economic situation
Business Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Sector Characteristics
Consumer Power Drives low margins
Substitution is major threat
Differentiation is relatively insignificant
High Barriers of Entry Very saturated market
Hard to get market share from strong, mature companies
Extensive capital is required
Business Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Sector Characteristics
Intensive Competition Consumers are very price sensitive regardless of brand names
External Factors Commodity prices
Climatic environment
Regulatory environment, both domestically and abroad
Business Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Future Opportunities
International expansion is primary growth opportunity Wal-Mart – India provides great expansion opportunity
Brand differentiation Hard to achieve, but better chance in personal product line
– Tide detergent vs. Great Value detergent
Business Analysis
Economic Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
10-Year Strong Correlation Coefficients
Economic AnalysisEconomic Analysis
Economic Variable Sector ProjectionTrade Balance with China -0.81 Balance narrowsCPI: Gas & Electricity 0.79 Growth expectedDollars / Euro 0.78 Euro is weakeningPublic Construction: Highways 0.76 DecreasingTrade Weighted Dollar -0.75 Dollar is weakeningNon-Residential Construction 0.64 DecliningTrade Balance -0.64 WideningCase Shiller Index -0.59 Continue to fallLabor Force Participation -0.57 On the riseConsumer Bankruptcies -0.57 Going downInventory/Sales Ratio -0.56 Decreasing
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
10-Year Modest Correlation Coefficients
Economic AnalysisEconomic Analysis
Economic Variable Sector Projection30-Year Bond Rates -0.46 ImprovingGDP Growth- Consumption -0.45 SteadyTrade Deficit -0.43 Further trade deficit expectedHousing Starts -0.42 SteadyReal Consumer Spending -0.41 RiseS&P 500 Price 0.39 RiseReal Disposable Income -0.38 RiseInterest Rate Spread -0.34 NarrowConsumer Confidence -0.32 Increase
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
10-Year Weak Correlation Coefficients
Economic AnalysisEconomic Analysis
Economic Variable Sector ProjectionVelocity of Money -0.26 Slowly decliningYen per dollar -0.21 Dollar is weakening vs. YenConsumer Spending -0.19 RisingUnemployment 0.15 SteadyReal GDP -0.14 IncreasingConsumer Price Index 0.14 Steady with possible increaseNominal GDP -0.11 IncreasingEmployment -0.1 IncreaseFederal Funds Rate -0.07 Increasing steadily
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Overall Economic Indication
- Trade balance with China could cause increases in price of staples
- Case-Schiller Index indicates a possible increase
- The effect of the trade weighted dollar indicates a potential increase in prices
- Weakening Euro indicates a possible decrease in prices
- Growth of CPI Gas and Electricity indicate growth potential
- Public Construction of Highways/Non-residential construction decline indicate a potential negative effect
Economic AnalysisEconomic Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Overall Economic Indication (Continued)
- Many factors indicate a decrease:- Consumer confidence indicates a decrease
- Real consumer spending indicates a decrease
- Disposable income indicates a decrease
- Labor force participation indicates a decrease
- 30-Yr bond rates indicate a decrease
- Economic factors that are not correlated to staples (without lead or lag time):
- Consumer spending, CPI, GDP, (un)employment, federal funds rate
Economic AnalysisEconomic Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples vs. S&P 500
Economic AnalysisEconomic Analysis
---- Staples---- S&P
Financial Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Sector – Revenue per share
•Although Revenue per share is growing, the growth rate is decreasing.
Financial AnalysisFinancial Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
S&P 500 – Revenue per share
•Growth rate has been declining.
•Revenue per share decreased in the previous year.
Financial AnalysisFinancial Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples - EPS
Financial AnalysisFinancial Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
S&P 500 - EPS
•EPS is improving.
•EPS growth rate has two low peak around 2001 and 2008.
Financial AnalysisFinancial Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Sector - EBITDA
•Relative to the S&P 500, decreased in the previous year.
Financial AnalysisFinancial Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Sector - ROE
•Decreased in the previous year, relative to the S&P 500.•Has been declining from 2001-2007•Increasing gradually since 2008
Financial AnalysisFinancial Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Sector – Net Profit Margin
•Relative to the S&P 500, it increased between 2007-2009.
Financial AnalysisFinancial Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Financial Analysis Summary
Revenue per share is to increase, but growth rate is to continue to decrease.
EPS is to continue to increase gradually, but growth rate is to decrease.
EBITDA is to improve but relative to the S&P 500, it is to continue to decrease.
ROE is to improve slightly but relative to the S&P 500, it is to continue to decrease.
Net Profit Margin is to improve slightly but relative to the S&P 500, it is to continue to decrease.
Financial AnalysisFinancial Analysis
Valuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Sector Valuation
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staple by Industry: Trailing P/E
• Lowest Current Trailing P/E – Brewers at 11.6x
• Highest Current Trailing P/E – Personal Products at 23.2x
• Current sector and industry Trailing P/E levels are lower than their medians except for Tobacco
• Current Trailing P/E of Food Distributors, Hypermarkets, Distillers & Vintners, Softdrinks and Personal Products are higher than the sector.• Current Trailing P/E cheap relative to the S&P 500 except for Personal Products at 1.3.
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staple by Industry: Forward P/E
• Lowest Current Forward P/E – Agricultural products at 9.6x• Highest Current Forward P/E – Personal Products at 18.6x• Current sector and industry Forward P/E levels are lower than their medians except for Tobacco
• Current Forward P/E of Drug Retailers, Brewers, Agricultural Products and Tobacco are lower than the sector.•Current Forward P/E are higher relative to the S&P 500 except for Personal Products.
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staple by Industry: Price-to-Book
• Lowest Current Price-to-Book– Brewers and Agricultural products at 1.2x• Highest Current Price-to-Book – Tobacco at 11.9x• Current sector and industry Price-to-Book levels are lower than their medians except for Tobaccoc
• Current Price-to-Book of Softdrinks, Tobacco and Personal Products are higher than the sector.• Current Price-to-Book are higher relative to the S&P 500 except for Drug Retail, Brewers and Agricultural Products.
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staple by Industry: Price-to-Sales
• Lowest Current Price-to-Sales– Food Retail at 0.2x• Highest Current Price-to-Sales – Tobacco at 2.7x• Current sector and industry Price-to-Sales levels are lower than their medians except for Brewers and Tobacco
• Current Price-to-Sales of Brewers, Soft Drinks Tobacco and Household Products are much higher than the sector.• Current Price-to-Sales levels are mixed relative to the S&P 500.
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staple by Industry: Price-to-Cashflow
• Lowest Current Price-to-Cashflow– Food Retail at 5.7x• Highest Current Price-to- Price-to-Cashflow– Personal Products at 16.1x• Current sector and industry Price-to-Cashflow levels are lower than their medians except for Tobacco.
• Current Price-to-Cashflow of Food Distributors, Soft Drinks and Tobacco are much higher than the sector.
• Current Price-to-Cashflow levels are generally higher relative to the S&P 500.
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staple Company Valuation
NameTrailing
P/EForward
P/E
Price to
BookPrice to Sales
Price to Cashflow
Drug RetailCVS Caremark Corp 14.00 13.2 1.4 0.5 10.1Walgreen Co 16.30 14.8 2.4 0.5 11.2Drug Retail Industry Valuation 14.90 14.2 1.7 0.5 10.6
Food DistributorsSysco Corp 17.10 16.1 4.4 0.5 12.2
Food RetailKroger Co/The 13.80 13.5 3.1 0.2 5.8Safeway Inc 16.70 15 2.1 0.3 5.8SUPERVALU Inc 8.10 8.8 1.1 0.1 2.5Whole Foods Market Inc 39.50 30.8 3.2 0.8 15.5Food Retail Industry - Valuation 14.80 14.7 2.3 0.2 5.7
Hypermarkets & Super CentersCostco Wholesale Corp 22.70 19.8 2.5 0.4 13.6Wal-Mart Stores Inc 14.90 13.7 2.9 0.5 9.8Hypermarkets & Super Centers Industry Valuation16.00 14.6 2.6 0.3 10.4
BrewersMolson Coors Brewing Co 11.60 12.6 1.2 2.7 9
Distillers & VintnersBrown-Forman Corp 18.70 18.1 4.6 2.7 16.6Constellation Brands Inc 10.90 10.9 1.3 1.2 7.7Distillers & Vintners Industry Valuation 16.50 15.1 2.5 1.5 11.8
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staple Company Valuation
NameTrailing
P/EForward
P/E
Price to
Book
Price to
SalesPrice to
Cashflow
Soft DrinksCoca-Cola Co/The 17.00 15.5 5 4 14.5Coca-Cola Enterprises Inc 17.50 16 16 0.6 7.5Dr Pepper Snapple Group Inc 17.00 14.1 2.7 1.5 11.7PepsiCo Inc/NC 17.20 15.1 6.1 2.4 13.6Soft Drinks Industry Valuation 17.50 15.6 5.4 2.1 13.9
Agricultural ProductsArcher-Daniels-Midland Co 12.60 10.1 1.2 0.3 8.1
Packaged Foods & MeatsCampbell Soup Co 15.00 14.2 11.9 1.6 11.4ConAgra Foods Inc 14.30 13.5 2.2 0.9 10Dean Foods Co 10.20 10.6 2.2 0.3 5.4General Mills Inc 15.00 15 3.7 1.6 11.5Hershey Co/The 19.80 14.5 13.8 2 14.9HJ Heinz Co 16.60 15.6 8.1 1.4 12.5Hormel Foods Corp 14.60 14.9 2.4 0.8 10.9JM Smucker Co/The 14.40 15 1.4 1.6 10.7Kellogg Co 17.10 15.1 9.1 1.6 12.9Kraft Foods Inc 14.80 14.6 1.7 1.3 11.7McCormick & Co Inc/MD 16.40 15.4 4 1.6 12.5Mead Johnson Nutrition Co 23.70 22.3 NM 3.8 21Sara Lee Corp 14.20 13.1 3.4 0.8 8.4Tyson Foods Inc 20.70 13 1.6 0.3 8.8Packaged Foods & Meats Industry Valuation 15.80 15.2 2.8 0.9 11.5
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staple Company Valuation
Name Trailing P/E Forward P/E Price to Book Price to SalesPrice to
Cashflow Tobacco Altria Group Inc 11.90 11.20 10.50 1.80 11.00Lorillard Inc 13.90 12.50NM 2.30 13.40
Philip Morris International Inc 14.80 13.10 15.3 3.70 13.10Reynolds American Inc 11.80 11.40 2.5 1.90 10.70Tobacco Valuation 13.70 12.60 11.9 2.70 12.70 Household Products Clorox Co 15.50 14.70 60.30 1.60 11.70Colgate-Palmolive Co 19.20 17.40 14.10 2.70 16.50Kimberly-Clark Corp 12.50 12.60 4.60 1.30 9.10Procter & Gamble Co/The 15.20 16.80 2.70 2.40 12.10
Household Products Valuation 15.40 15.30 3.40 2.20 12.20 Personal Products Avon Products Inc 18.60 16.20 11.10 1.40 15.10Estee Lauder Cos Inc/The 27.70 23.60 6.90 1.80 18.20
Personal Products Valuation 23.20 18.60 9.00 1.40 16.10
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Valuation Trends
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Valuation Trends
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Valuation Trends
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Five-Year Technical Chart
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Six-Month Technical Chart
Valuation AnalysisValuation Analysis
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Consumer Staples Valuation Analysis Summary
Industry valuations within the sector vary widely.
Company valuations in some industries can vary widely.
Most industry current valuations are lower than the long-term historical medians except for the Tobacco Industry.
The valuation ratios are trending upward from the lows of 2009.
The upward trend should continue as the economy continue to improve.
The S&P 500 Consumer Staples index looks like it is moving towards the bottom of the band.
Relative Strength Index of the sector is between 30-70.
Valuation AnalysisValuation Analysis
Recommendations
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Recommendation
Underweight consumer staples by 31 basis points under the S&PSell 107 basis points to bring staples to 10.7% of SIM portfolio
Why? Returns will be lower than that of the S&P if market trends continue Gap between returns of S&P 500 and returns of sector will widen as the economy continues to expand
Market expectations are rising
By underweighting our sector, we will be able to overweight cyclical sectors that will outperform the S&P
Risks: W recession
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Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
1 Year Industry Returns
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2 Year Industry Returns
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Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Brewers
Recomm-endationsRecomm-endations
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Personal Products
Recomm-endationsRecomm-endations
Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-endationsSize & Composition
Hypermarkets
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Agriculture Products
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Questions?