Transcript Industrials - Fisher College of Business

Bernard Hosanna
Shawana Jackson
Brett Kinkopf
Jonathan Kocon
Chien-Ying Lee
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Industry Analysis
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Recommendation
What is the Industrial Sector?
• Publicly traded companies that are responsible
for manufacturing, agriculture, mining, and
construction.
• “Extremely heterogeneous”
What is the Industrial Sector?
• This includes:
• Aerospace/Defense
• Electrical Equipment
• Machinery
(Farm, Construction, and Industrial)
• Waste Management
• Residential and Commercial Construction
(Including materials and services)
• Metal Fabrication
• Wood Production
• Small and Machine Tools
Who Are The Big Players?
#1- Boeing Co.
44.1B
#2- ABB Ltd.
40.1B
#3- Emerson Electric Co.
34.0B
#4- Caterpillar
32.3B
#5- Honeywell International
28.6B
#6- Lockheed Martin
28.2B
#7- General Dynamics Corp.
25.7B
#8- Illinois Tool Works Inc.
21.4B
#9- Deere & Co.
21.1B
#10- Raytheon Co.
20.4B
How big is this sector?
• Total Market Cap of $836.0 Billion
• This is 10.51% of the S&P 500
• How do we weigh compared to the S&P 500?
S&P 500 = 10.51%
SIM = 12.36
Δ = 1.85%
Performance
• Year to date of -1.9%
• Quarter to date of -1.9%
Year to Date
Performance
Three Months to Date
Maturity:
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Introduction
Growth
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Decline
Maturity
Sales growth ≈ growth
of the economy
Earnings growing, but
at a slower rate
Some expansion from
cash cows, late
entrants
Output
Contraction
• Recession
Peak
• Recovery
Trough
Trough
Expansion
Expansion?
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• Recession
TIME
Consumer confidence slightly up
Unemployment slightly down
Growth in developing economies
LIFE CYCLE:
MATURITY
Introduction
Growth
Decline
Maturity
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Business Cycle:
Expansion
• Expansion of
production capacity
• Emerging markets a
source of
competition?
INDUSTRY BREAKDOWN
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Larger, more
dominant firms
Minimal
innovations
FIVE FORCES MODEL
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High initial capital
investment
Cyclical sector
High rivalry
Substitution, supplier
power nonissue
Barrier to
Entry
Supplier
Power
Threat of
Substitutes
Buyer
Power
Degree of
Rivalry
The Industrials sector is strongly correlated with
•
S&P 500
•
Real GDP
•
Commercial and Industrial loans
•
Durable Goods Orders
Correlation= 0.9
Correlation= 0.85
Key drivers for the Industrials sector
 ISM Manufacturing & Non-Manufacturing data
 Global Economic Growth
 Capital spending
 Unemployment rate
 Industrial Production
Bulls
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Improved Global
Growth
Improving
Manufacturing Data
Better Consumer
Confidence
GDP Growth
Bears
• High Unemployment
Rate
• Rising Interest Rates
• Global Political Issues
• Growing Debt Risk
Absolute
Basis
P/E
High
21.5
7.1
17.6
16.0
P/B
3.6
1.4
3.2
2.5
-21.88%
P/S
1.6
0.6
1.4
1.0
-28.57%
P/CF
12.7
6.0
11.2
9.8
-12.5%
Relative to
High
SP500
P/E
1.2
Low
Low
Median
Median
Current
Current
% Current to
LT Median
-9.09%
% Current to
LT Median
0.66
1.1
0.89
-19.09%
P/B
1.3
1.0
1.1
1.2
9.1%
P/S
1.1
0.8
1.0
0.9
-10%
P/CF
1.2
0.8
1.1
1.0
-9.1%
P/E Relative to S&P
500
High
1.3
Low
0.65
Median
1.1
Current
0.79
P/E Relative to S&P
500
High
1.4
Low
0.7
Median
1.2
Current
1.0
INDUSTRIALS SECTOR SHOULD ADD 15 BASIS POINTS TO
BRING SECTOR TO 200 BASIS POINTS OVERWEIGHT
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Bears
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Slower than expected global growth
Rising commodity prices
Bulls
FINANCIALS
Sector ratios indicate that the sector is slightly undervalued
ECONOMIC
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Improving global growth
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Unemployment rate improving
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Rising GDP data
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Favorable industrial spending
