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Industrials Stock Recommendation

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Industrials Stock Recommendation. Bernard Hosanna Shawana Jackson Brett Kinkopf Jonathan Kocon Chien-Ying Lee. Agenda. Recap of Sector Industrial Holdings Stock Recommendations Summary Q&A. Sector Recap. SIM Industrials Weight: 12.76% S&P500 Industrials Weight : 10.28% - PowerPoint PPT Presentation
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  • Industrials Stock Recommendation

    Bernard Hosanna Shawana Jackson Brett Kinkopf Jonathan Kocon Chien-Ying Lee

  • AgendaRecap of SectorIndustrial HoldingsStock RecommendationsSummaryQ&A

  • Sector RecapSIM Industrials Weight: 12.76%S&P500 Industrials Weight : 10.28%Overweight by 248bpsClass agreed to increase 15bps to overweight the sector by 200bps Positive sector developmentsImproving global growthUnemployment rate improvingRising GDP dataFavorable industrial spending

  • Industrial Holdings Current Holdings

    Emerson=1.23%General Dynamics=3.57%Oshkosh=4.01%UTI Worldwide=2.38%First Solar=1.57%Total=12.76%

    Proposed Holdings

    Emerson=1.23%General Dynamics=3.00%Oshkosh=3.50%UTI Worldwide=2.38%Bucyrus=2.17%Total=12.28%

    Sell 57 bps of General DynamicsSell 51 bps of OshkoshSell 157 bps of First SolarBuy 217 bps of Bucyrus

  • First Solar (FSLR) OverviewProduces Cadmium Telluride Solar Panels and provides solar energy solution services

    Is attempting to attain grid parity or a ~$0.70/watt price of electricity

    Have claimed they hit $1/watt Much lower than the $4/watt for most solar units

    Considered a growth stockHas paid no dividends and has seen massive capital gains since its IPO

  • FSLR in Relation to XLI

  • FSLR Valuation

    Absolute ValuationHighLowMedianCurrent#Your Target Multiple*Your Target E, S, B, etc/ShareYour Target Price P/Forward E218.116.044.717.7206.1122P/S84.4011.24.5724168P/B97.53.49.13.5530.8154P/EBITDA633.2410.7281.3311.18209.6192P/CF973.711.687.711.9209.0180

  • FSLR DCF and Target PriceTerminal DCR of 12%Terminal FCF growth of 4.5%

    Target price of $148.74Current price of $108.62Upside of 36.9%!!!

    So why sell?

  • Everything Looks OK- So Why Sell?A considerable portion of FSLRs revenue is based on purchases backed by international governmental subsidiesRecently the German government announced that it would decrease its subsidies for photovoltaic panelsOn February 18th, FSLR management announced it would widen its EPS guidance to $6.05 - $6.85 So the DCF may still look good, but these forecasts are much less certain nowIn other words- overnight the volatility of this stock increased greatly.This company is beholden to the whims of foreign governments

  • Bucyrus InternationalProducts:DraglinesDrillsShovels & excavatorsMining trucks

    Demand Drivers: CoalCopper Oil sandsIron ore Other mineralsDesigns, manufactures, and markets mining equipment

    Supplies aftermarket parts and services for mining equipment

  • Bucyrus International RisksCommodities marketMining activityGlobal economyForeign currency

    NASDAQ:BUCYStock Price:$65.82Market Cap:$4.80bRevenue:$2.65bDiluted EPS:$4.12Shares:74.46mDividend Yield:0.20%

  • GDP & Bucyrus

  • Crude oil spot price & Bucyrus

  • International GrowthLargest surface markets:AustraliaCanadaChinaIndiaSouth AfricaSouth AmericaUSExpected growth in Russian and Indonesian marketsLargest underground markets:AustraliaGermanyChinaUSGermany expected to decline as a marketExpected growth in Russian, Indian, and Eastern European markets70% of sales outside of U.S.

  • Bucyruss Financials

  • Bucyruss Financials

  • Bucyruss Key Financial StatsLow current to D/E ratio at 0.37 compared to industry at 2.63

    Low PEG ratio at 1.24 compared to industry at 2.02

    5-year Historical EPS Growth Rate 86.5%

    Low P/E ratio at 15.33 compared to industry at 27.16

  • BUCYs Valuations

  • BUCYs Valuations

    Average Price Target = $90.63 = 38% upside

    Absolute ValuationHighLowMedian CurrentTarget MultipleTarget E,S,BPrice TargetP/Forward E26.1417.615.7184.9388.74P/S30.41.81.81.845.3181.56P/B49.114.93.84.916.8382.47P/EBITDA23.532.0914.498.85147.2100.8P/CF28.23.220.112.7204.9899.6

  • Joy Globals Valuation

    Average Price Target = $62.52 = 11% upside

  • DCF model & Target Price=(50% ave multiples + 50% DCF)=(0.5*$90.63 + 0.5*$81.50)=$86(30% upside)Current Share Price : $65.82Implied equity value/share : $81.5Upside/(Downside) to DCF : 23.8%Terminal Discount Rate:10.5%Terminal FCF Growth: 5.0%

  • What the charts suggests

  • Industry Charts

  • BUCY vs JOYG Charts over 5 yrs

  • SummaryProposed Holdings

    Emerson=1.23%General Dynamics=3.00%Oshkosh=3.50%UTI Worldwide=2.38%Bucyrus=2.17%Total=12.28%

    Sell 57 bps of General DynamicsSell 51 bps of OshkoshSell 157 bps of First SolarBuy 217 bps of BucyrusFirst SolarUncertain outlookHighly volatileGermans reduces subsidiesBucyrusRising global growth driven by emerging marketsImproving Asian urbanization should drive commodity prices higherTechnical charts bullish

  • BUCY Sensitivity Analysis

  • Emerson ElectricEmerson is a global diversified technology companyThe company engages in designing and supplying product technology, as well as delivering engineering services and solutions to various industrial, commercial, and consumer markets worldwideCurrent Share Price : $48.49Implied equity value/share : $54.56Upside/(Downside) to DCF : 12.5%Terminal Discount Rate:10.5%Terminal FCF Growth: 5.0%

  • OshkoshIndustry: Trucks and Other VehiclesMarket Cap: $3.3 BTarget Price: $44Current Price: $37.25Upside Potential: 18%

  • Uti WorldwideDCF:Current Price: $15Implied/Equity Value: $17Upside/(Downside): 10.3%Discount rate: 10%Terminal growth rate: 3.5%Multiples Target Price: $20Average Target Price: $18.50

    HighLowMedianCurrentTarget MultipleTarget / ShareTarget PriceP/E - Forward32.9010.1019.9020.4019.900.5611.14P/S1.200.200.600.400.603621.60P/B6.401.403.202.003.207.8825.60P/EBITDA25.294.9813.9711.3213.971.3919.44P/CF34.706.6016.6013.0016.601.2120.11

  • General DynamicsMultiple ValuationRecommendations

    HOLD Price Range: $77.51-- $86.26Target Price: 0.5* Ave of multiple valuation price + 0.5* DCF

    Absolute ValuationHighLowMedianCurrentTarget MultipleTarget value/shareValuation OpinionP/Trailing E19.76.515.310.212.76.4882.3P/Forward E1.80.61.20.81.079.43179.431P/B4.81.63.22.22.730.38682.042P/S13.423.939.666.217.210.76577.508P/CF18.25.513.98.811.357.686.26

    DCFLowHighTarget PriceCurrent Price (04/03/2010)72.9172.9172.9172.91Implied equity value/share81.9577.5186.2681.73Upside/( Downside)12.40%6.31%18.31%12.10%

  • General Dynamics--DCF

    Terminal Discount Rate =11.5%Terminal FCF Growth =4.0%

    Year2009E2010E2011E2012E2013E2014E2015E2016E2017E2018E2019ERevenue3198130737338993491635964366833741738165389283970740501 % Growth-3.89%10.29%3%3%2%2%2%2%2%2%Operating Income36283802435943654495458546774771486649635063 Operating Margin11.34%12.37%12.86%12.50%12.50%12.50%12.50%12.50%12.50%12.50%12.50%Interest and Other-141-133-147-152-156-159-162-166-169-172-176 Interest % of Sales-0.441%-0.434%-0.435%-0.434%-0.434%-0.434%-0.434%-0.434%-0.434%-0.434%-0.434%Taxes11021159133113311371139914271455148415141544 Tax Rate31.60%31.60%31.60%31.60%31.60%31.60%31.60%31.60%31.60%31.60%31.60%Net Income23742509288028822968302730883150321332773342 % Growth5.69%14.80%0.04%3.00%2.00%2.00%2.00%2.00%2.00%2.00%CFO30112920322033173417348535553626369837723848% of Sales9.41%9.50%9.50%9.50%9.50%9.50%9.50%9.50%9.50%9.50%9.50%Subtract Capital Expense475461505520532543550561568580587% of Sales1.49%1.50%1.49%1.49%1.48%1.48%1.47%1.47%1.46%1.46%1.45%Free Cash Flow25362459271527972884294230053065313031923260% of Growth-3.02%10.43%3.00%3.13%2.00%2.13%2.00%2.13%2.00%2.13%

    *********Our buy recommendation is for Bucyrus International Inc, a company in the Farm and Construction Machinery industry

    Bucyrus designs, manufactures, and markets mining equipment. They also provide replacement parts for that equipment and provide related services such as repair, installation, and electrical support.

    Some examples of the machinery manufactured areAll of their machinery is certified to ISO international standards

    Demand is driven by the commodities markets. Examples of minerals extracted using Bucyrus equipment areother includes gold, uranium, and diamonds

    Commodities markets are cyclical which means cyclical demand for machinery, which accounts for 50% of Bucyrus sales. The market for parts and services, the other 50% of sales, is relatively stable.

    In general, growth of commodities markets a function of:Pop growthEconomic growth in developing economiesConsumption growth in developed economies Continuous standard of living improvements globally

    More specifically for the individual commodities:Coal: possibly the worlds most critical source of energy (accts for 50% of global electricity; >50% of natural gas)Copper: basic material for residential and commercial construction, transportation, electrical equipment, durable consumer goods and moreOil sands: source of oilIron ore: one of the only primary sources to make steel*Key statistics:Current stock PMkt capEPS

    Risks associated with co:-Commodities mkts very cyclical -Sensitive to: price changes, production levels, development costs-Mining activity can be volatile -Int rates, custs replacement cycles, intense competition-Global economy -Capital and credit markets, tax policies, cancellation of orders-Foreign currency -significant amt of underground mining in euros, parts in local currency

    ***Just to get an idea of some of the geographic markets Bucyrus is in: -Largest markets for surface machinery are: -Future growth -Largest markets for underground machinery are: -future growthTo put in perspective: 70%******************

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Industrials Stock Recommendation Bernard Hosanna Shawana Jackson Brett Kinkopf Jonathan Kocon Chien-Ying Lee
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