Consumer DiscretionaryCompany 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)
• 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
75
80
85
90
95
100
105
Dec-08 Jan-09 Jan-09 Jan-09 Jan-09 Jan-09 Feb-09 Feb-09 Feb-09 Feb-09 Mar-09
Consumer Discretionary vs. S&P 500: YTD
Consumer Discretionary S&P 500
0
20
40
60
80
100
120
140
160
Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09
Consumer Discretionary vs. S&P 500: 10-Year
Consumer Discretionary S&P 500
Current SIM Composition
• Class voted to reduce our position by 303 bps or 50 bps underweight the S&P 500
As of 6-Mar-2009 close Recommendation
Company Ticker ValuePortfolio
Weighting (bps)Abercrombie & Fitch ANF $295,581 266Best Buy BBY 602,924 543Comcast CMCSA 304,706 275TOTAL $1,203,211 1084
Our Proposal
Best Buy50%
Comcast25%
A&F25%
Current SIM Weighting
Comcast35%
Best Buy34%
McDonald's31%
Proposed SIM Weighting
CompanyCurrent
Weight (bps) Buy / SellProposed
Weight (bps)Abercrombie & Fitch 266 Sell all - 266 bps 0Best Buy 543 Sell - 275 bps 268Comcast 275 Hold 275McDonald's 0 Buy - 238 bps 238TOTAL 1084 781
Abercrombie & Fitch (ANF)• ANF offers casual sportswear apparel under Abercrombie & Fitch,
abercrombie, Hollister, and RUEHL brands. The company also operates Gilly Hicks branded stores for women
• ANF targets teenagers and young adults through 1,035 stores in the U.S., Canada, and the United Kingdom, as well as websites and catalogue
Abercrombie & Fitch McDonald's
Industry Apparel Stores
Current Price (US$) 17.4952-Week Range (US$) 13.66 - 80.50Market Capitalization (m, US$) 1,520.0Beta 1.33P/E (ttm) 5.74Dividend Yield 3.20%
52-Week Change (75.23)%S&P 500 52-Week Change (47.16)%YTD Return (24.19)%
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 short-
term performance Sell
Financial Analysis: ANF
DuPont AnalysisMargin
%Asset
Turnover LeverageROE
%2008 20.25 1.56 1.59 31.472007 20.25 1.64 1.68 35.182006 19.73 1.75 1.91 41.122005 17.46 1.45 1.83 31.632004 19.61 1.32 1.63 25.7
Quarterly Mean Estimates Q1 Q2 Q3 Q4EPS Apr Jul Oct Jan
Mean 0.04 0.29 0.42 1.02High 0.14 0.48 0.58 1.36Low -0.15 -0.05 0.22 0.63
Annual Mean Estimates FY1 FY2 FY3EPS 2009 2010 2011
Mean 1.79 2.19 2.45High 2.25 3.00 2.72Low 1.22 1.38 2.20
IS RATIOS 2008 2007 2006 2005 2004Gross Profit Margin (%) 66.97 66.57 66.49 66.36 63.42Net Profit Margin Adjusted (%) 12.69 12.72 12.29 11.95 11.99Return on Average Total Equity (%) 31.47 35.18 41.12 31.63 25.7Return on Average Assets (%) 19.76 20.91 21.55 17.32 15.8
BS RATIOS 2008 2007 2006 2005 2004Cash Items/Total Capital (%) 40.07 37.7 46.41 50.61 60.75Quick Ratio 1.29 1.12 1.02 0.88 1.7Current Ratio 2.1 2.14 1.93 1.56 2.42Net Working Capital ($Mil) 597 581 456 242 442Asset Turnover 1.56 1.64 1.75 1.45 1.32
Financial Analysis: ANFStockVal®ABERCROMBIE & FITCH COMPANY (ANF) Price 17.49
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
NET PROFIT MARGIN ADJUSTED %8
10
12
14
16
HI 14.0 LO 8.5 ME 12.3 CU 8.5
04-30-199901-31-2009
TOTAL RETURN %20
40
60
110
200
HI 98.6 LO -79.3 CU -52.4 GR -7.2%
03-05-199903-06-2009
RETURN ON EQUITY %10
20
30
40
50
HI 71.3 LO 17.2 ME 33.1 CU 17.2
04-30-199901-31-2009
EARNINGS-PER-SHARE1
2
4
10HI 5.26 LO 1.03 ME 2.10 CU 3.38 GR 12.9%
04-30-199901-31-2009
• Trend is down for every metric, which we expect to continue through 2009
Valuation Analysis: ANF
Discounted Cash Flow Analysis
Forecast TerminalYear 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Value
Free Cash Flow 234,683 275,033 221,634 217,408 224,711 233,663 243,785 255,880 268,237 281,590 138,492 YOY growth 17% -19% -2% 3% 4% 4% 5% 5% 5% -51%
Terminal 1,584,967.8 Terminal Value 1,584,968 Terminal Discount Rate = 12.0% P/E 5.0 NPV of free cash flows 1,346,119 73% Terminal FCF Growth = 3.0% EV/EBITDA 3.18 NPV of terminal value 510,317 27% Free Cash Yield 8.74%Projected Equity Value 1,856,437 Free Cash Flow Yield 12.64%
Shares Outstanding 91,523.0
Current Price 17.49$
Implied equity value/share 20.28$
Upside/(Downside) to DCF 15.97%
Cash 50 Debt 6,182
Slight upside, but there are better opportunities in the
sector over the next twelve months
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$) 26.0252-Week Range (US$) 16.42 - 48.03Market Capitalization (m, US$) 10,220.0Beta 1.33P/E (ttm) 8.94Dividend Yield 1.90%
52-Week Change (38.02)%S&P 500 52-Week Change (47.16)%YTD Return (12.10)%
Business Analysis: BBY• Upsides
– Best-of-class U.S. consumer electronics retailer with knowledgeable sales staff and digital product focus
– Circuit City bankruptcy will likely increase market share
– Opening stores in Europe, which will bear long-term fruit
– Initiatives, such as Geek Squad, Best Buy Mobile and Apple Store within-a-store differentiate BBY in a competitive marketplace
• Downsides– Consumer spending and Disposable personal income are correlated to stock price, these
are likely to get worse before they get any better
– Management is taking action to cut back investment spending in business, specifically by approximately 50 percent vs. previous year Fewer new store openings both domestically and internationally
Financial Analysis: BBY
DuPont AnalysisMargin
%Asset
Turnover LeverageROE
%2008 5.72 3.04 2.46 26.112007 6.01 2.83 2.22 23.862006 5.68 2.78 2.28 23.492005 5.42 2.9 2.41 24.322004 5.41 3 2.66 26.01
Annual Mean Estimates FY1 FY2 FY3EPS 2009 2010 2011
Mean 2.62 2.39 2.58High 2.78 2.95 3.02Low 2.5 1.67 1.36
IS RATIOS 2008 2007 2006 2005 2004Gross Profit Margin (%) 23.85 24.4 25.05 23.68 23.92Net Profit Margin Adjusted (%) 3.49 3.8 3.7 3.49 3.26Return on Average Total Equity (%) 26.11 23.86 23.49 24.32 26.01Return on Average Assets (%) 10.6 10.75 10.29 10.1 9.79
BS RATIOS 2008 2007 2006 2005 2004Cash Items/Total Capital (%) 29.16 55.57 69.71 67.27 66.6Quick Ratio 0.3 0.69 0.7 0.75 0.65Current Ratio 1.08 1.44 1.32 1.39 1.27Net Working Capital ($Mil) 573 2780 1929 1944 1223Long-Term Debt/Equity (%) 13.98 9.51 3.39 11.87 14.09Total Debt/Total Assets (%) 6.4 4.79 5.02 5.83 9.82Asset Turnover 3.04 2.83 2.78 2.9 3
Unfavorable trend given that sales
may remain under
pressure
Mean EPS expectations
indicate contraction in
2009 and 2010
Leverage is an unfavorable method of increasing
ROE, unless you’re KKR
Financial Analysis: BBYStockVal®BEST BUY COMPANY INCORPORATED (BBY) Price 24.71
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
NET PROFIT MARGIN ADJUSTED %2
3
4
5
HI 4.1 LO 2.4 ME 3.4 CU 2.9
05-31-199911-30-2008
TOTAL RETURN %40
70
110
180
290
HI 189.5 LO -51.5 CU 31.7 GR 2.8%
03-05-199903-06-2009
RETURN ON EQUITY %20
25
30
35
40
HI 38.3 LO 22.1 ME 25.2 CU 27.2
05-31-199911-30-2008
EARNINGS-PER-SHARE0.4
0.8
1.2
2.0
3.6HI 3.21 LO 0.52 ME 1.61 CU 2.95 GR 19.9%
05-31-199911-30-2008
• BBY shows strong returns when consumers are spending and the economy is doing well
• This will occur, just not in the near-term, thus we are reducing our exposure
Valuation Analysis: BBY
Discounted Cash Flow Analysis
TerminalYear 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Value
Free Cash Flow 861 780 870 890 1,041 1,208 1,303 1,414 1,511 1,618 1,693 YOY growth -9% 12% 2% 17% 16% 8% 8% 7% 7% 5%
Terminal 25,154.4 Terminal Value 25,154 Shares Outstanding (M) 452.9 P/E 12.2 NPV of free cash flows 6,724 43% Cash 1,438 EV/EBITDA 5.73
NPV of terminal value 8,859 57% Debt 1,465 Free Cash Yield 6.73%Projected Equity Value 15,583 Free Cash Flow Yield 5.53% Terminal Disc. Rate = 11.0%
Terminal FCF Growth = 4.0%
Current Price 24.71$
Implied equity value/share 34.41$
Upside/(Downside) to DCF 39.24%
8% 9% 10% 11% 12% 13% 14% 15%0% 57% 37% 21% 9% -2% -11% -19% -25%1% 71% 47% 28% 14% 2% -8% -16% -23%2% 89% 59% 37% 20% 7% -4% -13% -21%3% 114% 76% 49% 29% 13% 1% -10% -18%4% 152% 99% 64% 39% 21% 6% -5% -15%5% 215% 134% 85% 53% 30% 13% 0% -11%
Forecast
Ter
min
al F
CF
G
row
th R
ate
Discount Rate
Valuation Analysis: BBYAbsolute Valuation: BBY
High Low Mean CurrentTarget
MultipleTarget x
per shareTarget Price
P/Forward E 46.90 7.20 18.20 11.80 15.00 2.61 $39.15 P/S 1.53 0.18 0.73 0.27 0.70 81.00 56.17 P/B 16.50 1.60 5.10 2.60 4.50 10.80 48.60
P/EBITDA 32.10 2.70 10.70 4.40 8.00 4.33 34.64 P/CF 49.60 4.00 14.80 6.60 13.00 1.93 25.09
Average $40.73
12-Month Target Price Calculation
DCF: $34.41
Multiples: $40.73
$37.57
44.4 percent UpsideEqual Weighting
McDonald’s (MCD)• MCD franchises and operates McDonald’s restaurants in more than 100 countries
globally. The restaurants are either operated by the Company or by franchisees• Current focus is on alignment around five factors known as “Plan to Win”
– (1) Menu Variety and Beverage Choice; (2) Better Restaurant Operations; (3) Customer Convenience; (4) Everyday Predictable Low Prices; and (5) Ongoing Restaurant Reinvestment
McDonald's GameStop
Industry Restaurants
Current Price (US$) 52.1252-Week Range (US$) 45.79 - 67.00Market Capitalization (m, US$) 58,040.0Beta 0.80P/E (ttm) 13.85Dividend Yield 3.80%
52-Week Change (0.29)%S&P 500 52-Week Change (47.16)%YTD Return (16.19)%
Business Analysis: MCD• Upsides
– Resilience• One of only two names within the Dow 30 to experience stock price appreciation in 2008
– 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
• 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
Change in Change inComparable Comparable Operating Income Operating Income
Restaurant Sales Restaurant Sales Growth for Growth for4th Quarter 2008 Quarter 2008
U.S. 5.0% 4.0% 11.0% 8.0%Europe 7.6% 8.5% 13.0% 17.0%Asia Pacific, Middle East and Africa 10.0% 9.0% 38.0% 28.0%
McDonald’s Comparable-Store Sales and Operating Income Growth
Financial Analysis: MCD
DuPont AnalysisMargin
%Asset
Turnover LeverageROE
%2008 28.4 0.81 2.02 29.342007 17.51 0.78 1.9 23.052006 21.83 0.71 1.93 19.392005 21.03 0.66 1.97 17.162004 19.9 0.67 2.05 18.78
Annual Mean Estimates FY1 FY2 FY3EPS 2009 2010 2011
Mean 3.84 4.19 4.52High 3.99 4.38 4.73Low 3.68 4.00 4.24
IS RATIOS 2008 2007 2006 2005 2004Gross Profit Margin (%) 36.73 34.69 33.18 32.31 33Net Profit Margin Adjusted (%) 17.87 15.55 14.2 13.17 13.74Return on Average Total Equity (%) 29.34 23.05 19.39 17.16 18.78Return on Average Assets (%) 14.53 12.14 10.07 8.71 9.16
BS RATIOS 2008 2007 2006 2005 2004Cash Items/Total Capital (%) 8.75 8.77 8.92 17.69 6.12Quick Ratio 1.18 0.67 0.99 1.23 0.6Current Ratio 1.39 0.8 1.76 1.51 0.81Net Working Capital ($Mil) 980 -917 2241 2111 -663Asset Turnover 0.81 0.78 0.71 0.66 0.67
ROE increases largely driven by expanding profit margins
Mean expectations
indicate a 3-Year EPS CAGR of 8.5
percent
MCD is generating more earnings from its assets
Financial Analysis: MCD
StockVal®MCDONALDS CORPORATION (MCD) Price 52.121999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
NET PROFIT MARGIN ADJUSTED %10
12
14
16
18
HI 17.9 LO 10.9 ME 13.7 CU 17.9
03-31-199912-31-2008
TOTAL RETURN %20
30
60
100
160
HI 51.4 LO -71.0 CU 24.6 GR 2.2%
03-05-199903-06-2009
RETURN ON EQUITY %12
18
24
30
36
HI 30.3 LO 15.1 ME 19.2 CU 30.3
03-31-199912-31-2008
EARNINGS-PER-SHARE1
2
4
10HI 3.67 LO 1.29 ME 1.51 CU 3.67 GR 11.3%
03-31-199912-31-2008
• Metrics are all trending upwards
• Profit margins and Earnings-per-share are hitting 10-year highs amidst the economic slowdown
Valuation Analysis: MCD
Discounted Cash Flow Analysis
Forecast TerminalYear 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016 2017E 2018E 2019E Value
Free Cash Flow 5,266 5,068 5,654 7,011 8,086 9,242 10,519 11,782 12,978 14,170 15,197 YOY growth -4% 12% 24% 15% 14% 14% 12% 10% 9% 7%
Terminal 156,530.5 Terminal Value 156,531 Terminal Discount Rate = 13.0% P/E 10.6 NPV of free cash flows 47,883 57% Terminal FCF Growth = 3.0% EV/EBITDA 7.03 NPV of terminal value 36,113 43% Free Cash Yield 9.71%Projected Equity Value 83,996 Free Cash Flow Yield 6.27%
Shares Outstanding 1,200.0
Current Price 52.50$
Implied equity value/share 70.00$
Upside/(Downside) to DCF 33.33%
Cash 2,063 Debt 10,816
Valuation Analysis: MCDSensitivity Table for DCF
5% 4.50% 4% 3.50% 3% 2.50% 2%10% 149.85% 134.47% 121.66% 110.82% 101.53% 93.48% 86.44%
10.50% 125.14% 112.95% 102.64% 93.80% 86.14% 79.44% 73.52%11% 104.66% 94.84% 86.43% 79.14% 72.77% 67.14% 62.14%
11.50% 87.42% 79.42% 72.48% 66.41% 61.05% 56.29% 52.03%12% 72.73% 66.12% 60.35% 55.25% 50.71% 46.66% 43.01%
12.50% 60.07% 54.56% 49.71% 45.39% 41.53% 38.06% 34.91%13% 49.05% 44.42% 40.31% 36.64% 33.33% 30.33% 27.61%
13.50% 39.38% 35.46% 31.96% 28.81% 25.95% 23.36% 20.99%14% 30.83% 27.49% 24.49% 21.77% 19.30% 17.04% 14.98%
Terminal FCF Growth
Term
inal
Dis
coun
t rat
e
Valuation Analysis: MCD
Absolute ValuationTarget Target x Target
High Low Mean Current Multiple Per Share Price
P/Forward E 33.70 8.90 15.70 13.50 15.70 4.52 $70.96
PEG Ratio 2.80 1.00 1.80 1.50 1.80 35.00 63.00
P/Adjusted Cash Flow 25.00 6.00 12.60 11.00 12.60 5.19 65.39
P/Sales 5.36 1.13 2.60 2.54 2.60 21.60 56.16
P/EBITDA 18.50 5.20 9.00 7.50 9.00 7.00 63.00
Average $63.70
12-Month Target Price Calculation
DCF: $70.00
Multiples: $63.70
$66.85
27.3 percent UpsideEqual Weighting
Comparative Multiples Analysis
Summary
• Buy:– 238 bps of McDonald’s
• Sell:– Entire position in Abercrombie & Fitch– 275 bps of Best Buy
What questions do you have?
GameStop (GME)• GameStop is the world's largest video game and entertainment software retailer, offering new
and used video games
• The company operates 6,207 retail stores in 17 countries worldwide. The company also operates two e-commerce sites, GameStop.com and EBgames.com, and publishes Game Informer magazine, a leading multi-platform video game publication
GameStop
Industry Electronics Retail
Current Price (US$) 22.3852-Week Range (US$) 16.91 - 59.13Market Capitalization (m, US$) 3,670.0Beta 1.40P/E (ttm) 10.54Dividend Yield 0.00%
52-Week Change (47.56)%S&P 500 52-Week Change (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
Trade-in ValuesAmazon.com GameStop.com
Super Smash Bros Brawl Wii $22.00 $20.00Street Fighter IV PS3 33.00 30.00Skate 2 360 26.50 24.00Call of Duty: World at War Final Fronts PS2 18.50 17.00Mario Kart DS DS 16.50 15.00
Analysis of New Used-Game Competition
Financial Analysis: GME
Mean EPS expectations
are increasing steadily
through 2011
Leverage is declining, which
is good in a tough economic
environment
DuPont AnalysisMargin
%Asset
Turnover LeverageROE
%2008 7.09 1.99 2.2 18.312007 6.37 1.67 2.56 13.362006 6.16 1.57 2.37 13.842005 5.48 2.03 1.6 11.322004 6.7 1.85 1.5 11.11
DuPont AnalysisMargin
%Asset
Turnover LeverageROE
%2008 7.09 1.99 2.2 18.312007 6.37 1.67 2.56 13.362006 6.16 1.57 2.37 13.842005 5.48 2.03 1.6 11.322004 6.7 1.85 1.5 11.11
Annual Mean Estimates FY1 FY2 FY3EPS 2009 2010 2011
Mean 2.4 2.84 2.97High 2.41 3 3.1Low 2.37 2.7 2.71
Annual Mean Estimates FY1 FY2 FY3EPS 2009 2010 2011
Mean 2.4 2.84 2.97High 2.41 3 3.1Low 2.37 2.7 2.71
ROE is growing, mostly driven by profit margins and
higher turnover
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
StockVal®GAMESTOP CORPORATION (GME) Price 22.381999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
NET PROFIT MARGIN ADJUSTED %0
2
4
6
HI 4.5 LO -1.2 ME 3.4 CU 4.4
01-31-200110-31-2008
TOTAL RETURN %30
60
140
290
630
HI 524.2 LO -60.2 CU 124.9 GR 12.2%
02-15-200203-06-2009
RETURN ON EQUITY %8
16
24
32
40
HI 100.0 LO 9.5 ME 12.2 CU 17.9
01-31-200110-31-2008
EARNINGS-PER-SHARE-1
0
1
2
3HI 2.17 LO -0.13 ME 0.57 CU 2.13 GR NMN
01-31-200110-31-2008
Valuation Analysis: GME
Discounted Cash Flow Analysis
DCF Valuation
3/7/2009
Ticker: GME
Terminal Discount Rate = 11.5%
Bryan Chard
Terminal FCF Growth = 3.5%
Forecast Terminal
Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Value
Revenue 8,800,000 9,680,000 10,502,800 11,237,996 11,968,466 12,686,574 13,384,335 14,053,552 14,685,962 15,273,400 15,807,969
% Growth 10.00% 8.50% 7.00% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 3.50%
Operating Income 660,000 750,200 813,967 865,326 897,635 926,120 950,288 969,695 983,959 992,771 1,027,518
Operating Margin 7.50% 7.75% 7.75% 7.70% 7.50% 7.30% 7.10% 6.90% 6.70% 6.50% 6.50%
Interest - net 46,640 51,304 55,665 55,665 55,665 55,665 55,665 55,665 55,665 55,665 55,665
Interest % of Sales 0.53% 0.53% 0.53% 0.50% 0.47% 0.44% 0.42% 0.40% 0.38% 0.36% 0.35%
Taxes 220,810 251,603 272,989 291,478 303,109 313,364 322,064 329,051 334,186 337,358 349,867
Tax Rate 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0%
Net Income 392,550 447,293 485,313 518,183 538,861 557,091 572,559 584,979 594,109 599,748 621,986
% Growth 14% 9% 9% 8% 7% 6% 5% 4% 4% 4%
Add Depreciation/Amort 130,270 145,200 157,542 168,570 179,527 190,299 200,765 210,803 220,289 229,101 237,120
% of Sales 1.48% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%
Plus/(minus) Changes WC 8,268 23,760 27,903 28,095 29,921 31,716 33,461 35,134 36,715 38,184 39,520
% of Sales 0.09% 0.25% 0.27% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Subtract Cap Ex 175,000 145,200 157,542 168,570 179,527 190,299 200,765 210,803 220,289 229,101 237,120
Capex % of sales 1.99% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%
Free Cash Flow 356,088 471,053 513,216 546,278 568,782 588,808 606,020 620,113 630,823 637,931 661,506
YOY growth 32% 9% 6% 4% 4% 3% 2% 2% 1% 4%
Terminal Value 8,558,233 NPV of free cash flows 3,270,135 NPV of terminal value 2,317,852 Projected Equity Value 5,587,987 Free Cash Flow Yield 6.37%
Shares Outstanding 167,995.0
Current Price $ 22.38
Implied equity value/share $ 33.26
Upside/(Downside) to DCF 48.63%
Valuation Analysis: GME
Average Upside34.7% Upside
13% Terminal Discount with 2.5% Terminal FCF Growth21.2% Upside
MCD 5-Yr Price Performance
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