Post on 19-Apr-2018
CONSUMER
DISCRETIONARY
Mike Anderson & Bingqian Lu
Recommendations
Industry Recap
Analysis of Stocks
Conclusion
AGENDA
RECOMMENDATIONS
Current Sector Weight: 12.80
Current SIM Weight: 12.61
Recommendation: Slightly Underweight*
Sector Stock Recommendations
Company Ticker Current
Basis
Proposed
Basis
Current
Price
Target
Price
Upside
(Downside) Recommend
Comcast CMCSA 2.17 2.17 63.24 66.80 5.6% HOLD
Direct TV DTV 2.58 0.00 92.76 94.20 1.6% SELL
Harley Davidson HOG 3.13 4.25 57.67 63.44 10.0% BUY
Michael Kors KORS 1.43 2.50 43.47 58.01 33.4% BUY
Service
Corporation Intl SCI 3.30 3.30 29.67 31.30 5.5% HOLD
TOTAL: 12.61 12.22 UNDERWEIGHT
Industry Recap
• Size: 2.398 T
• Status: Cyclical
• Categories: retailers, media
companies, consumer services
companies, consumer durables and
apparel companies, and
automobiles and components
companies
Performance
Securities Price Change Total Return Difference
Con Dis 121.66% 154.45% 55.12%
SPX 64.94% 99.33%
KORS
HOG
DTV
ANALYSIS
Michael Kors
Company Overview
Stock Overview
Competitive Advantage
Investment thesis
Valuation
Risks & Concerns
Recommendation
Company Overview
Michael Kors sells watches, jewels,
handbags, apparels and etc by
distinguishing itself as a global luxury
lifestyle brand.
Founder: Michael Kors
Founded in 1981
North America, Europe, Asia
Two Collections: Michael Kors & Michael
Michael kors
Stock Overview
12 month stock price
40
50
60
70
80
90
100
2014/7/1 2014/11/1 2015/3/1 2015/7/1
• Market Cap: $8.55B
• Shares Outstanding: 200M
• Dividend Yield: 0%
• 52 Weeks Low: $41.52
• 52 Weeks High: $91.79
• Profit Margin: 23.70%
• EPS: $4.28
• Target Price: $58.01
Competitive Advantage
Sales strategies:
partnership & shop-in-shops
international expansion & e-commerce
Marketing Strategies:
brand awareness & selection
price advantage
Investment Thesis
Current economic condition-unfavorable
Gucci, Prada, Burberry continuously marked down their inventories, which forced the operating margin of entry-level luxury products down.
Financial Analysis
Strong new store growth & above average same
store sales
Financial Analysis
Most efficient profit generator, sales per square
feet and operating margin are the highest among
its competitors
Financial Analysis
Stable on DIO growth, 8% growth from 2011 to
2015
Valuation
Target Price:
Avg: $67.99
Heavily rely on
sale revenue
Avg estimate is
high
Sensitivity Analysis
Terminal Growth Rate
D
iscount R
ate
3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 5.00%
10.00% $61.75 $63.29 $64.95 $66.75 $68.69 $70.81 $73.11 $75.64 $78.41
10.25% $59.37 $60.79 $62.30 $63.93 $65.70 $67.61 $69.68 $71.95 $74.43
10.50% $57.16 $58.46 $59.84 $61.33 $62.93 $64.67 $66.54 $68.58 $70.80
10.75% $55.10 $56.29 $57.56 $58.92 $60.38 $61.95 $63.65 $65.50 $67.50
11.00% $53.17 $54.26 $55.43 $56.67 $58.01 $59.45 $60.99 $62.66 $64.47
11.25% $51.35 $52.36 $53.44 $54.58 $55.81 $57.12 $58.53 $60.05 $61.69
11.50% $49.65 $50.58 $51.57 $52.63 $53.75 $54.96 $56.25 $57.63 $59.12
11.75% $48.05 $48.91 $49.83 $50.80 $51.84 $52.94 $54.12 $55.39 $56.75
12.00% $46.53 $47.33 $48.18 $49.08 $50.04 $51.06 $52.14 $53.31 $54.55
Risks & Concerns
Foreign exchange risk
-dollar appreciate, all forward contract will expire at the
beginning of 2016 fiscal year
Strategic risk
-consumer preference
Expansion concern in Asia
-licensing issue with Michael Kors Far East Holding Ltd
Recommendation
Shares Outstanding 200,865
Current Price $43.47
Implied equity value/share 58.01
Upside/(Downside) to DCF 33.4%
Debt 0.00
Cash $978,922
Cash/share 4.87
Current Weight 143bps
Recommended Weight 250bps
Harley Davidson
Company Overview
Stock Overview
Investment thesis
Financial Analysis
Growth Strategy
Valuation
Risks & Concerns
Recommendation
Company Overview
Harley-Davidson, Inc. (HOG)
Manufactures cruiser and touring motorcycles. The company operates in two segments, Motorcycles & Related Products and Financial Services.
Harley-Davidson Motor Company
The Motorcycles & Related Products segment designs, manufactures, and sells at wholesale street-legal Harley-Davidson motorcycles, as well as a line of motorcycle parts, accessories, general merchandise, and related services.
Harley-Davidson Financial Services
The Financial Services segment provides wholesale and retail financing, and insurance and insurance-related programs to dealers and retail customers.
Founded in 1903
Stock Overview
12 month stock price
STOCK DATA
Ticker
Sector
Price (7/14/15)
52-week range
Market Cap. (M)
Shares Out. Diluted (M)
Annual Dividend
Dividend Yield
Est P/E (2015)
Est PEG (2015)
Book Value / Share
HOG
Consumer Disc
$57.67
$53- $71
$11,674.3
208.1
$1.24
2.21
14.09
1.26
$14.11
Investment Thesis
Harley-Davidson currently represents a BUY
opportunity due to the following reasons:
Loyalty to its customer base and brand despite
competitors discount pricing as a result of exchange
rates
Growing customer base with a solid strategy for
growth
A stock price that appears inexpensive
Financial Analysis
Exchange rate issues
Profit margin improvements
NOPAT growth
Stock repurchase
Future projections
Strategy for growth
“Fatten the tails”
Outreach customers and programs
Middleweight market
Valuation
Multiples:
Industry
Firm
COMPANY Mkt Cap (USD) P/E ('15) P/B P/S P/CF P/EBITDA PEG ('15)
Average 29.5B 14.20 3.59 1.13 14.89 6.89 1.77
HARLEY-DAVIDSON INC 11.7B 14.10 3.97 1.90 10.77 7.28 1.26
POLARIS INDUSTRIES 9.8B 19.77 11.16 2.11 19.99 11.15 1.22
HONDA MOTOR CO LTD 58.1B 11.36 1.05 0.56 4.99 4.49 0.94
SUZUKI MOTOR CORP 18.5B 18.86 1.52 0.75 8.86 7.20 1.74
YAMAHA MOTOR CO 7.7B 10.85 2.00 0.61 14.87 6.77 0.84
BMW 71.2B 10.27 1.80 0.78 29.86 4.10 4.57
Absolute Valuation
Current Target
Multiple TGT/Current
Expected EPS
Target Price
P/E 14.10 14.5 1.02 4.09 60.43
P/B 3.97 4 1.01 60.89
P/S 1.90 2 1.05 63.61
P/EBITDA 7.28 7.5 1.03 62.26
HOG RATIO CURRENT AVERAGE HIGH LOW
ABSOLUTE P / E 14.168 16.383 42.899 2.808
P / B 3.947 4.083 6.914 .902
P / S 1.933 1.948 3.375 .326
P / EBITDA 7.556 8.968 22.931 1.523
S5COND P / E .641 .878 2.397 .015
P / B .775 1.391 2.628 .464
P / S 1.244 1.922 3.571 .809
P / EBITDA .716 1.189 3.220 .341
SPX P / E .774 1.004 2.324 .252
P / B 1.401 1.666 2.431 .590
P / S 1.064 1.337 2.088 .468
P / EBITDA .754 1.224 3.040 .370
Multiples
Valuation
Multiples (cont.)
Avg target price $61.80
DCF
Target price: $65.08
Combined:
$63.44 (equal weight)
Analysts (13)
Mean Target: $66
Risks & Concerns
Continued strength of U.S. dollar
Aging core demographic
Potential credit market deterioration
Competition from other motorcycle makers
Economic stalling or contraction
Recommendation
Shares Outstanding 208.1M
Current Price $57.67
Implied equity value/share $63.44
Upside/(Downside) to DCF 10.0%
Debt $5.93B
Cash $8.21M
Cash/share $3.95
Current Weight 313bps
Recommended Weight 425bps
DTV
Recommend: Sell
Potential AT&T merger at $95 valuation
Small upside (projected 1.6% return)
No dividend
Sunday Ticket class action suit
• Underweight sector (12.22 vice 12.80)
• Buy additional HOG (313bps to 425 bps)
• Buy additional KORS (143 bps to 250 bps)
• Sell DTV (258 bps to 0)
CONCLUSION
QUESTIONS?