Succeeding with Wall Street, A Guide for The C-Suite and Board of Directors

Succeeding with Wall Street A Guide for the C-Suite and Board

Cindy Shaw, CFA May 2010

WIIFM?* Investors Want to Know:

©2010 Cindy Shaw, CFA. All rights reserved. 2 * What’s In It For Me?

Will the stock make me money?

What are the risks?

©2010 Cindy Shaw, CFA. All rights reserved. 3

Most Companies Do Little to Help Answer the 1st* Question

* Will the stock make me money?


What We Have Here is Failure to Communicate the Right Information

IBM Communicates the Right Stuff

2010 – 2015 EPS CAGR of ~14% due to:

  Margin expansion (mix shift to software)

  Mid-single digit revenue growth

  Share buybacks

Source: IBM at its May 2010 Analyst Day; many supporting details were also provided.

5 ©2010 Cindy Shaw, CFA. All rights reserved.

5000+ Stocks Trade on US Markets


Help investors find a needle in the haystack (your company’s stock).

Stocks are Products

The Three Key Reasons Products Fail Are:

  Poor Awareness

  Poor Understanding of its Benefits

  Failure to Deliver the Benefits

Source: “New Product Marketing”, a graduate-level course at The Wharton School at the Univ. of Pennsylvania 7 ©2010 Cindy Shaw, CFA. All rights reserved.

8

Needles in a Haystack: Developing Awareness

and Understanding

©2010 Cindy Shaw, CFA. All rights reserved.

Know Your Product and Customer


Wall Street’s “Sides”

BUY-SIDE SELL-SIDE

Business Investing Transactions & advice

Win By Gathering, making & preserving money

Trading & transactions (indirectly: being listened to)

Clients Pensions, endowments, 401k plans, mutual fund investors

BUY-SIDE and individual (“retail”) investors

Examples Fidelity, American Funds, Dodge & Cox, Vanguard,

PIMCO, BlackRock, Franklin

Morgan Stanley, Goldman, JP Morgan, Merrill (BofA), Pacific Crest, Piper J., Jeffries, JMP

Per Analyst 25 - 200+ stocks 12 - 18 stocks

Other Financial background common

Valued for access to management, industry

contacts and unique info 10 ©2010 Cindy Shaw, CFA. All rights reserved.

Analysts Recommend, PMs Decide


Portfolio Manager

(“PM”)

Sell-Side Analyst

Buy-Side Analyst

Where Did All the Sell-Side Analysts Go?

2,600

2000 2009

16,200

12 Sources: Ernst & Young, Tabb Group and Meet the Street ©2010 Cindy Shaw, CFA. All rights reserved.

Sell-Side Research Funding

Then Now

Investment Banking

Client Trades


Investors Get Information From

  Sell-Side Analysts

  Competitors, Customers and Suppliers

  The Media

  The Company


Understanding Wall Street

Their Strengths:

  Access to info

  See the big picture

  Smart, educated

  Have seen many investment theses play out… or not

Their Challenges:

  Perform or out

  Nowhere else to go

  Highly competitive

  Typically no industry experience

  Need to decide now

  Time management 15 ©2010 Cindy Shaw, CFA. All rights reserved.

Working with Investors

Elevator Summary

Facilitate Fast, Easy Research

Be Prudent, Transparent & Credible


17

Will the Stock be a Moneymaker?


Investors Evaluate:

18

Sentiment

Fundamentals

Valuation


Sentiment: “Tao Jones” Index

~ 50% Macro

~ 35% Sector

~ 15% Stock


Fundamental Strategies

  Increase revenue   New customers / products / geographies   Raise prices?

  Divest or fix a weak operation

  Reduce share count

  Cut costs


Valuation Varies — A Lot

Source: Seeking Alpha, 4/23/10 market close 21 ©2010 Cindy Shaw, CFA. All rights reserved.

13 16

24 27 26

17

25

32

0

5

10

15

20

25

30

35 Price-to-Earnings (P/E) Ratio

Valuation Multiple Determinants

  Profit Expectations

  Prospects (Strategy / Market / Position)

  Execution (History / Consistency)

  Risk (Credibility / Transparency / Visibility)

  Market Factors

  Investor Awareness and Understanding


Market Factors

  Price

  Liquidity & Market Cap

  Research / Trading Coverage

  Pure Play Opportunities

  Simplicity of the Investment

  Interest Rates / Outlook


Strategic Factors

  The Usual: 5 Forces, SWOT, Life Cycle, 7S, Boston Box and Value Chain

  Size / Growth of the Market

  Industry / Market Position

  Barriers to Entry

  First Mover Advantage

  Law of Large #s


Operational Factors

  Quality and Depth of the Management

  Visibility (Orders, Guidance)

  Consistency of Performance

  Global Reach

  Market Share Gains

  Breadth of Product Lines


Financial Factors

  Earnings Per Share Growth   Quality of Earnings   Revenue Growth   Margin Levels and Trends

  Free Cash Flow   Economies of Scale   Operating Leverage   Strong Balance Sheet


Investor Rules of Thumb


  Beware declining margins and slowing revenue growth

  Analysts never forget

  Portfolio Managers have better memories than analysts

  “Accretive acquisition” is an oxymoron

  Turnarounds often don’t

  Events happen in trilogies

  Fixes take time

Recommendations


Develop Awareness & Understanding

  Elevator Summary

  Facilitate Fast, Easy Research

  Be Prudent, Transparent & Credible

Deliver


Discuss the Outlook and Its Drivers


Make It Easy to Learn and Explain Why Your Stock Could be a Moneymaker


Appendix

32

Cindy Shaw, CFA [email protected]

LinkedIn: www.linkedin.com/in/CindyShawCFA


HAPPY MAD

MAD REAL MAD

SELL BUY

Right

Wrong

Company and Long Investor Perspective


~65% Buy

~30% Hold

~5% Sell

HAPPY MAD

MAD REAL MAD

SELL BUY

Right

Wrong

Therefore


The Power of a 1% Cost Cut


Cost Cut

STARTING Margin

ENDING Margin

% Profit Increase

1% + 1% = 2% 100%

1% + 2% = 3% 50%

1% + 5% = 6% 20%

1% + 10% = 11% 10%

1% + 20% = 21% 5%

1% + 30% = 31% 3.3%

Succeeding with Wall Street, A Guide for The C-Suite and Board of Directors

Business

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