Industrials Sector Analysis - Fisher College of Business | Sector Analysis Wes Faulkenberry, Ma...
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Transcript of Industrials Sector Analysis - Fisher College of Business | Sector Analysis Wes Faulkenberry, Ma...
IndustrialsSectorAnalysis
WesFaulkenberry,Ma0Landy,JeridLinkhart&MichaelMcLellandBUSFIN7225-SIM
Industrials Sector
Sector Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation
Recommendation
Industrials Sector
Sector Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation
Recommendation
Sector Overview
©2014. All rights reserved 4
SIM • SIM Holdings - $6,652k • Industrials Holdings - $654k SPX • SPX Market Cap – $30.23T • Industrials Sector – $3.12T
Sector Overview
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Sector Overview
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9.4%
2.7%
3.0%
2.6%
2.6%
2.1%
2.4%
3.0%
3.0%
Sector Overview
• Placeholder
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Industrials Sector
Sector Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation
Recommendation
Business Analysis
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Business Analysis
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Business Analysis
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• Porter’s Five Forces Analysis Porter's Five Forces Analysis-Industrials Sector
Force Barriers to Entry Supplier Power Buyer Power Substitutes Competition
Threat High Medium Medium Medium High
Attr
ibut
es
(+) High startup costs due to large capital
expenditure requirements and
established companies with high brand
awareness
(+) Most raw materials are easily obtainable
and low switching costs
(-) Cyclical business dependent on economic
conditions
(-) Products can be easily replicated with
new technologies
(+) Established customer base and few major players in each
industry
Industrials Sector
Sector Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation
Recommendation
Economic Analysis
• Industrials compared to consumer confidence
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S&P 500 Compared to Consumer Confidence
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Economic Analysis
Economic Analysis
• Industrials compared to Oil prices
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Industrials Sector
Sector Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation
Recommendation
Financial Analysis
Industrials Sector – Sales & Earnings
• Sales Growth- 2014 4.989%, 2015E 2.807%, 2016E 1.464%
• Earnings Growth – 2014 11.75%, 2015 7.48%, 2016E 6.68%
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Financial Analysis • Aircraft, Defense, Construction
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Financial Analysis
• Operating Margin – 12.70% • Profit Margin – 7.02 • R&D/Sales– 2.23% • ROE – 16.24 %
Free Cash Flow Yield
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Financial Analysis
Industrials Sector
Sector Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation
Recommendation
Valuation
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Industrials Sector (S5INDU) Absolute Basis High Low Median Current P/E 20 7.3 17.1 16.3 P/B 3.9 1.6 3.0 3.6 P/S 1.7 0.6 1.4 1.5 P/EBITDA 10.1 3.8 8.7 8.5
Relative to SP500 High Low Median Current P/E 0.83 0.61 1.03 0.90 P/B 1.30 1.0 1.25 1.33 P/S 0.94 0.86 1.0 0.83 P/EBITDA 0.98 0.86 1.21 0.84
Absolute Basis (SPX) High Low Median Current P/E 24 11.9 16.6 18.1 P/B 3.0 1.6 2.4 2.7 P/S 1.8 0.7 1.4 1.8 P/EBITDA 10.3 4.4 7.2 10.1
Valuation
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Industry P/E P/B P/S P/CF P/EBITDAAerospace&Defense(11members) 16.78094 6.247687 1.564863 14.31875 9.301431AirFreight&Logistics(4members) 20.2582 16.27574 1.173332 13.84045 11.60592Airlines(4members) 9.769167 5.29648 0.944195 7.002726 5.213451BuildingProducts(2members) 24.0069 124.4944 1.972612 19.99589 12.16789CommercialServices&Supplies(7members) 21.02952 6.56777 2.117145 14.35527 10.45257Construction&Engineering(3members) 12.39845 1.380813 0.424954 10.27001 6.415167ElectricalEquipment(4members) 15.21028 3.558847 1.971804 13.75897 8.948594IndustrialConglomerates(4members) 22.72957 4.036055 3.294448 14.98261 13.19077Machinery(13members) 15.01671 3.034518 1.369773 11.99929 7.865562ProfessionalServices(5members) 26.96258 6.844681 3.730704 17.5443 12.39108TradingCompanies&Distributors(3members) 15.70049 5.197756 1.757799 12.34125 7.669203
Valuation
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Company P/E P/B P/S P/EBITDABoeing Co. 16.96 15.09 1.03 10.07United Parcel Service 21.92 44.01 1.63 13.843M Co. 19.9 7.22 3.04 11.32Union Pacific Corp 16.46 3.91 3.51 7.89Honeywell 17.46 4.36 1.92 11.43Lockheed Martin Corp 18.1 19.06 1.43 9.93United Technologies Corp 15.24 2.84 1.34 7.5
AVERAGES 18.01 13.78 1.99 10.28
Company to Company Analysis (Largest Peers)
Valuation
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• Valuation multiples have widened relative to the S&P 500
• P/CF is has the closest relative value to the market
• Cyclical nature of industrials affects multiples
Industrials Sector
Sector Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation
Recommendation
Recommendation
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Overweight Sector
Pros: • Increasing
margins • Continued
revenue growth • Relative valuation
Risks: • Oil prices • Consumer
confidence • Austerity
measures
Underweight: Construction