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?