sector analysis - fisher college of business sector.pdf · •pepsi co ($139.54b) •philip morris...

Sector Analysis

ErikaBrendanYing (Charlene) Zhang

AgendaFinancial Analysis

EconomicAnalysis

Valuation Analysis

Business Analysis

RecommendationOverview

Agenda

Overview

Financial Analysis

Economic Analysis

Valuation Analysis

Business Analysis

Recommendation

Overview

Overview


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Valuation Analysis

Business Analysis


• Size of Sector• Market Cap (as of March 17, 2015): $3.49T• 38 Companies

Overview


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Valuation Analysis

Business Analysis


• Products categories represented in this sector include beverages (alcoholic and non), food, tobacco, personal and household items.

• Demand less impacted by economic downturns(defensive not cyclical) (low beta)• Some firms may see positive growth in economic

downturns (discount retailers, tobacco and alcohol)

• Low correlation to S&P 500

Overview


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Valuation Analysis

Business Analysis


• Industry Components (last updated 3/24/15 12:55p)

Last % Change YTD 1-Y 3-Y 5-Y

Consumer Staples 0.00% 0.99% 15.48% 45.22% 75.24%

S&P 500 ® Index -0.22% 2.21% 12.75% 51.09% -0.22%

Beverages 0.58% 1.03% 14.69% 40.91% 66.28%

Food & Staples Retailing 0.27% 6.52% 26.76% 85.81% 113.71%

Food Products -0.12% -1.74% 8.03% 45.67% 74.47%

Household Products -0.32% -4.82% 9.15% 33.41% 44.11%

Personal Products 1.52% 3.33% 1.27% -0.10% 3.95%

Tobacco -0.87% 2.38% 16.93% 22.13% 94.20%

Overview


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Business Analysis


• Largest Companies in Sector (Market Cap)• Wal-Mart ($266.30B)• Proctor & Gamble ($225.65B)• Coca-Cola ($176.97B)• Pepsi Co ($139.54B)• Philip Morris International, Inc. ($120.49B)• CVS ($115.92B)• British American Tobacco ($102.24B)

Financial Analysis

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-0.33%1.67%

3.56%

7.31%

-0.03% -4.04%-6.20%

-3.60%

21.61%22.95%

32.17%

40.62%

21.48%

5.93%

-6.74%

19.13%

5.95%

8.63%

1.46%

7.00%

2.31%

-2.33%

2.58%

-0.43%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

S&P 500 ConsumerStaples

Beverages Food &Staples

Retailing

FoodProducts

HouseholdProducts

PersonalProducts

Tobacco

Revenue Growth

Current

Historical (2010)

Future (2016)

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5.56%

-0.02%

7.38%11.54%

2.54%-0.67%

44.72%

-7.36%

41.82%

24.75%

16.71%

41.59%

31.54%

13.20%

-45%

20.36%12.88% 11.66% 9.90% 10.86% 9.31% 7.37%

69.21%

-0.14%

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

S&P 500 ConsumerStaples

Beverages Food &Staples

Retailing

FoodProducts

HouseholdProducts

PersonalProducts

Tobacco

Earnings Growth

Current

Historical (2010)

Future (2016)

Financial Analysis


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Valuation Analysis

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Major Companies

Food & Staples Retailing

Household Products

BeveragesFood

ProductsTobacco

S&P 500Consumer

StaplesBeverages

Food & Staples

Retailing

Food Products

Household Products

Personal Products

Tobacco Wal-Mart Proctor & Gamble

Coca-Cola Con-AgraPhilip Morris

Operating Margin

13.33% 9.26% 17.58% 4.7% 7.53% 16.54% 9.17% 39.71% 5.59% 16.63% 21.11% 3.67% 39.31%

Profit Margin

9.16% 5.86% 12.04% 2.72% 4.99% 10.97% 1.83% 25.32% 3.37% 11.69% 15.43% 2.41% 25.17%

Current Ratio

1.43 1.15 1.11 1.24 1.19 0.99 1.71 1.02 0.97 0.97 1.02 1.21 1.02

P/E Ratio 18.81 20.78 21.47 23.22 19.52 21.24 35.23 17.15 16.59 20.72 20.41 15.29 15.93

Current

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Historical & Future CS v. S&P CY 2008 CY 2009 CY 2010 CY 2011 CY 2012 CY 2013 CY 2014 Current CY 2015 Est CY 2016 Est

12 Months Ending2008-12-

312009-12-

312010-12-

312011-12-

302012-12-

312013-12-

312014-12-

312015-03-

232015-12-

312016-12-

31

Valuation Metrics

Price/Earnings 13.74 14.86 15.64 16.03 16.27 18.46 20.63 20.91 20.43 18.72

S&P 500 Index 16.61 19.23 15.11 12.91 14.10 17.22 18.41 18.84 17.88 15.84

EV/EBITDA 8.90 9.31 9.97 10.25 10.40 11.68 13.49 13.54 12.23 11.47

S&P 500 Index 8.16 10.13 9.26 8.40 9.00 10.71 11.55 11.71 10.71 9.81

Dividend Yield 3.01 2.90 3.18 2.90 3.23 2.61 2.52 2.65 2.65 2.83

S&P 500 Index 3.15 2.12 1.88 2.12 2.24 1.89 1.95 1.95 2.03 2.17

FundamentalsGross Margin 29.76 30.63 30.97 30.09 29.53 29.80 29.27 29.32

S&P 500 Index 30.46 31.93 32.62 32.31 32.00 32.11 32.63 32.68

Operating Margin 9.48 9.87 9.80 9.54 9.46 9.95 9.13 9.26

S&P 500 Index 8.35 9.67 13.37 13.68 13.44 13.66 13.28 13.33

Profit Margin 5.60 6.21 6.50 6.04 6.28 6.82 6.00 5.86

S&P 500 Index 2.41 6.28 8.51 8.88 8.33 9.59 9.20 9.16

Return on Assets 7.70 8.41 8.56 7.83 8.22 8.96 7.87 7.60 8.92 9.97

S&P 500 Index 0.75 1.93 2.82 3.14 2.85 3.30 3.14 3.13 3.25 3.35

Return on Equity 19.90 22.74 22.80 21.62 22.79 25.25 22.47 21.70 24.03 25.47

S&P 500 Index 4.31 10.68 14.22 14.93 13.57 15.31 14.44 14.40 15.49 15.47

Source: Bloomberg

Financial Analysis


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Major CompaniesFood & Staples

RetailingHousehold Products

BeveragesFood

ProductsTobacco

Wal-Mart Proctor & Gamble Coca-Cola Con-Agra Philip Morris

D/E Ratio 58.63 53.16 136.6 149.93 N/A

A/R Turnover 72.19 12.85 9.85 12.75 7.58

Inventory Turnover

8.11 6.04 5.61 4.97 1.13

Asset Turnover 2.38 0.59 0.51 0.83 0.81

ROA 8.01% 6.84% 7.8% 2.00% 20.43%

ROE 20.76% 14.15% 21.77% 7.29% N/A

R&D (% Sales) N/A N/A N/A N/A N/A

Current

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Major CompaniesFood & Staples Retailing

Household Products

Beverages Food Products Tobacco

Wal-Mart Proctor & Gamble Coca-Cola Con-Agra Philip Morris

D/E Ratio 56.88 48.56 74.77 65.46 322.24

A/R Turnover 101.4 14.13 8.58 14.97 8.91

Inventory Turnover

9.06 5.72 5.07 5.24 1.11

Asset Turnover 2.44 0.6 0.58 1.05 0.78

ROA 8.61% 9.68% 19.51% 6.36% 20.86%

ROE 21.17% 20.58% 42.5% 15.05% 157.43%

Historical (2010)

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Consumer Staples: Net User or Generator of FCF?CY 2008 CY 2009 CY 2010 CY 2011 CY 2012 CY 2013 CY 2014 Current

CY 2015 Est

CY 2016 Est

12 Months Ending 2008-12-31 2009-12-31 2010-12-31 2011-12-30 2012-12-31 2013-12-31 2014-12-31 2015-03-23 2015-12-31 2016-12-31

Cash Flow Items per Share

Cash From Operations 24.31 27.28 25.77 28.78 32.98 31.85 33.10 34.01 31.34 34.47

S&P 500 Index 155.37 142.43 152.01 182.43 170.06 199.57 183.31 183.97 171.13 189.77

Cash Flow From Investing -10.44 -10.63 -11.84 -8.26 -15.15 -12.18 -13.72 -14.90

S&P 500 Index -154.64 -13.66 -70.22 -129.24 -151.62 -146.98 -155.45 -156.69

Cash From Financing -12.32 -15.49 -12.56 -20.67 -15.92 -18.12 -17.60 -17.22

S&P 500 Index 13.38 -108.37 -78.69 -38.32 -14.51 -46.75 -33.76 -30.62

Capital Expenditures -9.91 -9.12 -8.58 -10.29 -10.23 -9.98 -10.12 -10.11 -10.62 -10.79

S&P 500 Index -65.27 -48.01 -52.43 -65.57 -70.79 -71.61 -77.19 -77.49 -77.63 -77.88

Free Cash Flow 14.47 18.22 17.30 18.76 22.87 21.92 23.04 23.95 20.72 23.66

S&P 500 Index 89.04 93.63 99.30 116.11 97.30 128.14 106.10 106.44 93.25 111.38

Reference Items

Free Cash Flow Yield 5.87 6.64 5.70 5.59 6.34 4.95 4.61 4.73

S&P 500 Index 9.86 8.40 7.90 9.23 6.82 6.93 5.15 5.04

Source: Bloomberg

Economic Analysis

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MACROECONOMIC FACTORS

Consumer Sentiment

Initial Jobless Claims

US Dollar Revaluation

Commodity Prices

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REGRESSION ANALYSIS ELATIVE TO S&P 500

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CONSUMER SENTIMENT

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INITIAL JOBLESS CLAIMS

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US DOLLAR REVALUATION

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US DOLLAR REVALUATION CONT.

Trailing Returns of US Dollar

Total Returns 1 Month 3 Month 6 Month

USD/Euro -3.87% -10.55% -14.52%

JPY/USD 0.76% -0.57% 9.52%

USD/GBP -4.25% -4.45% -8.97%

RUB/USD -5.41% 9.57% 51.56%

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COMMODITY PRICES

Bloomberg Commodity Index

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S&P 500 High Low Median Average Current

P/E 19.12 11.86 15.48 15.62 18.78

P/B 2.91 1.78 2.25 2.32 2.90

P/S 1.85 1.10 1.39 1.45 1.84

P/EBITDA 9.99 5.70 7.23 7.71 9.92

P/FCF 11.51 6.41 8.65 8.68 11.44

Numbers are based on trailing 5 years

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Consumer Staples High Low Median Average Current

P/E 21.50 14.02 16.83 17.19 20.84

P/B 5.52 3.11 3.95 4.03 5.41

P/S 1.41 0.91 1.08 1.12 1.38

P/EBITDA 12.36 7.42 9.10 9.32 12.06

P/FCF 15.63 9.53 12.12 12.37 14.83


Relative to S&P 500 High Low Median Average Current

P/E 1.12 1.18 1.09 1.11 1.10

P/B 1.90 1.75 1.76 1.87 1.74

P/S 0.76 0.83 0.78 0.75 0.77

P/EBITDA 1.24 1.30 1.26 1.22 1.21

P/FCF 1.36 1.49 1.40 1.30 1.43


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Industry Comparison 1 Month 3 Month YTD 1 YearPrice to

Earnings

Price to

Sales

Dividend

Yield

Consumer Staples -0.96% -0.45% 1.52% 18.74% 20.84 1.38 2.66%

Food Staples & Retailing 2.22% 5.93% 6.92% 29.45% 23.25 0.65 2.02%

Food Beverage & Tobacco -2.61% -1.22% 1.08% 17.23% 19.51 2.21 2.94%

Household & Personal Products -0.58% -5.91% -3.71% 10.55% 21.51 2.81 2.76%

Business Analysis

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-- US Business Cycle

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-- Business Cycle Sensitivity

• Consumer Staples – Defensive Sector

• Constant Demand

• Sector Sensitivity Breakdown:Beverages: low Food & Staples Retailing: lowHousehold Products: lowTobacco: low Food Products: low/ moderatePersonal Products: moderate

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Companies Ticker Industry Beta

Procter & Gamble PG Personal Products 0.82

Coca Cola KO Beverages-Soft Drinks 0.81

Philip Morris PM Cigarettes 1.03

Anheuser Busch BUD Beverages-Brewers 1.16

AmBev ABEV Beverages-Brewers N/A

PepsiCo PEP Beverages-Soft Drinks 0.59

Diageo DEOBeverages-Wineries &

Distillers0.88

CVS Caremark CVS Health Care Plans 0.96

Altria MO Cigarettes 0.66

Colgate-Palmolive CL Personal Products 0.82

-- Business Cycle Sensitivity

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-- Growth Drivers

Demand – People cannot cut consumer staplesSupply – Little room to increase price

• Reducing Cost• Innovation• Shifting focus on “Healthy and Wellness”• Divestitures and Restructuring Initiatives• Acquisition and Strategic Partnerships

Profitability and Pricing


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-- Five Force Power Model

Intensity of Rivalry within the Industry

(High)

Threats of Potential Entrants (Moderate)

Threats of Substitute Products (Low)

Bargaining Power of Suppliers (Low)

Bargaining Power of Buyers (High)

Bargaining Power of Buyers – High Price Sensitivity: High

Brand Loyalty: Low

Switching Costs: Low

Retailer Power: High

Quality Demand: Increasing

Bargaining Power of Suppliers – Low Quantity of Suppliers: High

Raw Material Price Flexibility: Low




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Threats of Potential Entrants – Moderate Economies of Scale: Moderate

R&D: Moderate

Capital Requirement: Moderate

Access to Distribution Channels: Low

Threats of Substitute Products – Low Demand Consistent: High

Intensity of Rivalry within the Industry – High Diverse Competitor

Products difference: Low




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Recommendation

Recommendation


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Business Analysis


SIM Portfolio – under weight compared to S&P 500• Strong dollar currency• Declining global economy

SIM Portfolio S&P 500 Index

Consumer Staples: 9.32% Consumer Staples: 9.80%

sector analysis - fisher college of business sector.pdf · •pepsi co ($139.54b) •philip morris...

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