PREPARED BY: ASHLEY CLARK RICHARD GROSS JON HARMACEK OLGA ISENBERG BRYON JORDAN Industrial Sector...
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PREPARED BY: ASHLEY CLARK RICHARD GROSS JON HARMACEK OLGA ISENBERG BRYON JORDAN Industrial Sector Presentation
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Transcript of PREPARED BY: ASHLEY CLARK RICHARD GROSS JON HARMACEK OLGA ISENBERG BRYON JORDAN Industrial Sector...
PREPARED BY:ASHLEY CLARKRICHARD GROSSJON HARMACEKOLGA ISENBERGBRYON JORDAN
Industrial Sector Presentation
Agenda
Sector AnalysisBusiness AnalysisEconomic AnalysisFinancial AnalysisValuation AnalysisRecommendationQ&A
Sector Analysis
SIM Weight
7.50%
12.36% 10.68%
9.33%
13.58%
11.57%
20.19%
4.12%
3.28%
3.87%
3.53%
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Cash
Industrials Sector SIM Weight vs S&P 500
9.79%
11.57%
8.50%
9.00%
9.50%
10.00%
10.50%
11.00%
11.50%
12.00%
S&P 500 Weight SIM Weight
S&P 500 Weight
SIM Weight
The Industrials Sector makes up 11.57% of the SIM Portfolio, 178 basis points above the S&P 500.
Sector Analysis – Top 10 companies
General Electric Co 14.7%
United Parcel Service Inc 6.1%
United Technologies Corp 5.9%
3M Co 5.5%
Union Pacific Corp 3.6%
Boeing Co 3.5%
Lockheed Martin 3.4%
Emerson Electric Co 3.2%
Burlington Northern Santa Fe Co 3.1%
Honeywell Intl Inc 2.9%
All Other 48.1%
Sector Analysis – Returns by sector
Returns by Sector
-10.00%
-5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%
S&P 500
Energy
Materials
Industrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
Information Technology
Telecommunications Services
Utilities
Secto
r
% Return
YTD
QTD
Industrial QTD Return – 3.65%Industrial YTD Return - -4.32%
Business Analysis – Economic cycle
Source: http://personal.fidelity.com/products/funds/content/sector/cycle.shtml
Business Analysis – Industrials vs. S&P 500
Source: http://www.yahoo.com
Source: http://openlearn.open.ac.uk/mod/resource/view.php?id=281253
Business Analysis – Stages of Maturity
Economic Analysis
Industrials are highly correlated to GDP, real interest rates, real private investments, federal government spending and housing market
In June 2009, The Fed Beige Book report indicated that the expectations of several districts regarding the recession have improved, though they do not see the substantial increase in economic activity through the end of the year
In Q2 2009, manufacturing activity declined or remained at a low level across most states
Economic Analysis – GDP vs. Industrial Equipment
Economic Analysis – GDP vs. Change in Real Investment
Economic Analysis – GDP vs. New Single Family Home Sales
Economic Analysis – Industrial Production Index vs. Recessions
Economic Analysis – Capacity Utilization vs. Recessions
Economic Analysis – Real Private Investment vs. Recessions
Financial Analysis - Net Profit Margin
Financial Analysis - ROE
Financial Analysis - ROE Key Operating Statistics
2005 2006 2007 2008 2009
EBITDA Margin 18.0% 17.8% 18.5% 18.4% 18.4% Stable
Net Profit Margin 7.7% 8.2% 8.4% 7.8% 7.3% Decreasing
ROE 17.3% 17.8% 19.5% 20.7% 21.3% Increasing
*Red indicates consensus estimates
Financial Analysis - EPS YOY Growth
Financial Analysis - Earnings Per Share
Next Expected EPS Date: Sep
2004 2005 2006 2007 2008 2009 2010
Mar 2.91 3.48 4.06 4.52 5.05 3.12 3.09
Jun 3.37 4.08 4.52 5.24 5.73 3.21 3.58
Sep 3.34 4.07 4.72 5.22 5.4 3.36 3.88
Dec 3.6 4.37 5.16 5.63 4.72 3.62 4.03
Year 13.22 16.00 18.46 20.61 20.90 13.83 14.64
Year to Year 21% 15% 12% 1% -34% 6%
*Red indicates consensus estimates
Expected Significant
Decrease in 2009 Overall
Expected Significant
Decrease in 2009 Overall
Expected Increase in 2010
Overall
Expected Increase in 2010
Overall
Validation Analysis - Industrials
Industrials Sector
High Low Median Current
P/E 30.5 7.1 20.2 10.7
P/S 1.6 0.6 1.4 0.8
P/B 3.6 1.4 3.2 2.3
P/CS 14.0 4.9 11.4 6.7
vs S&P 500
P/E 1.2 0.66 1.1 0.69
P/S 1.1 0.8 1.0 0.8
P/B 1.3 1.0 1.1 1.1
P/CS 1.2 0.7 1.1 0.8
Validation Analysis - P/E vs. S&P 500
Validation Analysis - P/S vs. S&P 500
Validation Analysis - P/B vs. S&P 500
Validation Analysis - P/CF vs. S&P 500
Recommendation
Maintain the current overweight of 178 basis points (SIM 11.57% vs. S&P 500 9.79%)
Positives: During the recession most of industrial stocks are undervalued Most of the stocks should have an upside when economy turns around Increased government spending (i.e. OSK, GE, Shaw) Low interest rates
Risks: Double-dip recession driving prices further down Lag between GDP growth and Industrial growth Companies have divested most of the assets due to the prolonged recession Excess capacity in the housing market and commercial real estate
Q&A
