consumer discretionary company presentation

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



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


%Asset


%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


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


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


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


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%




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



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


%Asset


%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


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


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


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


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%





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


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


%Asset


%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


%Asset


%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


Mean 2.4 2.84 2.97High 2.41 3 3.1Low 2.37 2.7 2.71


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


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


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%


Current Price $ 22.38

Implied equity value/share $ 33.26


Valuation Analysis: GME

Average Upside34.7% Upside

13% Terminal Discount with 2.5% Terminal FCF Growth21.2% Upside

MCD 5-Yr Price Performance

consumer discretionary company presentation

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