Consumer DiscretionaryStaples

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Consumer Discretionary/Staples

• Jen Borowiec
• Valerie Boyd
• Jason Farris
• David Lincoln
• Steve Livingston
• Wen Chao Gao
• Siddharth Desai

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Recommendation

• Decrease MCD from 4.19 to 3.75
• Increase KSS from 3.26 to 3.40
• Increase HDI from 1.11 to 1.33
• Increase BUD from 3.57 to 3.65
• Keep LOW at 3.66
• Keep PNRA at 3.75
• Keep PG at 1.79
• Keep WAG at 1.85

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Economic Overview

• Contradicting Economic Data
• Taxpayer refund checks increase 27 to
  2500/family early next yearwill prompte
  spending and help the economy turn
• Interest rates are at an all time lowpromotes
  borrowing and growth- will spark the economy
• However.

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Economic Overview (cont.)

• U.S. government deficit widened to 69.5 billion
  in October (up from the 54.1 billion gap in Oct.
  last year)
• Will push up interest rates and stall expansion
• When the government borrows it leaves less money
  for the rest of us to borrow
• Retail stores dont expect robust holiday sales
• Competitive price cutting will keep revenues down
  but not as low as the previous holiday season
• Conclusion Stalled or not, the economy is due
  for a rebound that will follow the stock
  markets rebound of 30 over the last 8 months,
  it may happen slower than expected but it will
  happen

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Industry/Sector Overview

• Staples
• Steady growth, little fluctuation with economic
  changes due to defensive position
• Negative future outlook regarding the performance
  of the sector
• Discretionary
• Very cyclical, moves significantly with
  economic/market fluctuations
• Positive outlook as to the performance of certain
  stocks within the sector

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Anheuser-Busch

• Recommendation Increase to 3.65
• Worlds largest brewer
• 1 in U.S. market share 50 for 1st time in
  history
• Budweiser 1 Beer in nation
• Produces more than 30 different beers
• Largest recycler of aluminum cans
• Improvement of brand mix through introduction of
  Michelob ULTRA - very successful
• According to executives, beer volume growth
  trends are rebounding
• Despite unfavorable weather conditions and other
  short-term events, market share, revenue per
  barrel and earnings have been excellent
• Huge economies of scale and successful management

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ROE is currently 74.2 ROE FY02 was 54.4
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Growth Rate Estimate is at 12 for 2003
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• 5th straight year of dependable EPS and ROC
  growth
• ROC is on track for 100 basis point gain in 2003

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Free Cash Flow Yield currently over 5
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Kohls Corporation

• Recommendation Increase to 3.40
• Nearly 500 discount department stores
• ½ stores in Midwest
• Target middle-income households
• Centrally located cash registers
• expedite checkout
• Competes with both discount and mid-level
  department stores
• Controlling cost and inventory planning
• Same-store sales decline of about 11
• Deeper markdowns in womens apparel than
  anticipated
• Down graded rating to in-line from outperform
• Take advantage of weakness in the stock
• Conservative sales and inventory planning
• Improve gross margins in future
• Tight inventories

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Growth Rate Estimate 21
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Predicting increase in revenues for 2004 and 2005
opening new stores
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McDonalds Corp.

• Current Weight 4.19
• Suggested Weight 3.75
• McDonald's Corporation operates in the food
  service industry and primarily operates and
  franchises quick-service restaurant businesses
  under the McDonald's brand.

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Revenue Source

• Approximately 80 of McDonald's restaurants and
  about 75 of the total revenues of its
  restaurants are in nine markets
• Australia
• Brazil
• Canada, United States
• China, Japan
• France, Germany, the United Kingdom

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Partner Brands

• The Company also operates other restaurant
  concepts under its partner brands
• Boston Market
• Chipotle Mexican Grill
• Donatos Pizzeria

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Harley Davidson

• Current weight 1.11
• Recommendation Increase to 1.31
• Business Description
• Designs, manufactures and sells heavyweight
  touring, custom and performance motorcycles as
  well as a complete line of parts, accessories and
  general merchandise.
• Competitors
• BMW, Ducati, Honda, Indian Motorcycle, Kawasaki
  Heavy Industries,Polaris Industrie

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Harley Davidson

• Life Cycle Growth
• 2003 estimate
• Sales 13.4
• Gross Profit 17.1
• Net Income 29.4
• Motorcycle units
• Domestic 11.4
• International 7.2
• H-D registration 12.9

• 2004 estimate
• Sales 10.0
• Gross Profit 11.1
• Net Income 14.5
• Motorcycle units
• Domestic 8.7
• International 18.3

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Harley Davidson

• Harley Davidson management has been historically
  conservative in estimates.
• The numbers are supported and calculated with
  intense involvement from the retail dealerships.

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Dupont Analytics
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Cash Flow
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Price/ Cash Flow
28
Price/ Book
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Price/EBITDA
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EPS Surprises

• 8 consecutive quarters

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Price Momentum
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Harley Davidson

• Recent Analysts thoughts
• Insider Activity Neutral
• Risk Moderate
• Weighting Recently slight splitting
• Over-reaction
• Causes for Concern
• Production Growth
• Gross Margins

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Harley Davidson

• Opportunity Exists
• Management continues to keep investors interests
  a concern, with an eye on the long-term health of
  the firm
• International Penetration
• Continuous Reengineering and Design
• Target Prices
• Recent acquisition

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Recommendation

• Decrease MCD from 4.19 to 3.75
• Increase KSS from 3.26 to 3.40
• Increase HDI from 1.11 to 1.33
• Increase BUD from 3.57 to 3.65
• Keep LOW at 3.66
• Keep PNRA at 3.75
• Keep PG at 1.79
• Keep WAG at 1.85