Analyst Program AP Canon Inc. CAJ

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Analyst Program (AP) Canon Inc. (CAJ)
Wednesday, October 29th
Joe Moran Andrew Gauthier Eddie Rumler Dan Coyne
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Introduction Slide

• Name Stock Canon Inc (CAJ)
• Rating 5 Hold (1Strong Sell, 5Hold, 10Strong
  Buy)
• Risk level Medium
• Major reasons for recommendation
• Increased RD spending for future technological
  advances
• Focus on operational efficiencies
• Gain in market share from ultra competitive
  environment
• Major risks attributed to the stock
• Long-term Growth in IT spending (data storage,
  data recovery, etc)
• Growth in technological advances (more
  competition)
• Reliance on large single customer (HP)
• Currency risks

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Business Model

• Headquartered in Japan
• Canon Inc is the worlds leading manufacturer of
  plain paper copying machines, digital
  multifunction devices laser beam printers, inkjet
  printers, cameras, and steppers and mask
  aligners.
• CEO - Fujio Mitarai
• Very focused on operating efficiencies and
  maintains Japanese values.
• Three Product Groups
• Business machines (65 of 2007 net sales)
• Cameras (26)
• Optical and other products (9)
• Maintains low levels of debt.
• This aids financial flexibility.

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Company Overview

• Canon, Inc. (CAJ) is a part of the Electronic
  Office Equipment Industry and the Photographic
  Supplies and Equipment industry. These
  Industries are very similar in fact many
  companies like Canon are in both Industries. I
  will focus on the Electronic Office Equipment
  Industry.
• 65 of their company is dedicated to
  Office/Business Machines, 26 Cameras, and 9
  Optical.
• Currently in this Industry there are several
  companies who are currently expanding and
  acquiring other companies.
• FUJIFILM holdings conducted a successful takeover
  of Toyama Chemical Company
• Konika Minolta completed a full acquisition of
  Danka Office Imaging Company
• Konika Minolta plans to invest 18 Billion
  Japanese Yen to build a new factory in Kobe
• Xerox Corp. launches new iGen4 Press (First
  installation is to occur at Keiger Printing, in
  Wiston-Salem, North Carolina
• As compared to its Industry CAJ has been one of
  the 5 top performing stocks over the past year.
  Over the last three months it is among the 5
  worst stocks.

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Stock Performance (Table)
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Recent News

• 3rd Quarter Profits Fall
• Falling Purchases of Color Copiers
• Reduced income from cameras
• Foreign Exchange Movement
• Decrease in expected earnings for 4Q of 2008FY
• Market purchase of common stock
• 12.8 million shares

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DCF -Forecast

• Assumptions
• Revenue Growth Rate
• Decrease to 2008E and 2009E then gradually
  increase (recessionary trends)
• Net Income ( of Sales)
• Steady operating efficiencies then gradual
  increase
• Capital Expenditures ( of Sales)
• Planned increase in (R D, new plants)
• Depreciation ( of Sales)
• 3 less CAPEX (based on historical data)

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DCF and Valuation Summary

• Discount Rate
• CAPM
• Rf 10 year T-Bill
• Beta Yahoo Finance
• MRP Hist. Avg.

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Summary

• Rating 5 Hold (1Strong Sell, 5Hold, 10Strong
  Buy)
• Major reasons for recommendation
• Low Debt Levels
• Increased RD spending for future technological
  advances
• Focus on operational efficiencies
• Gain in market share from ultra competitive
  environment
• Major risks attributed to the stock
• Long-term Growth in IT spending (data storage,
  data recovery, etc)
• Growth in technological advances (more
  competition)
• Reliance on large single customer (HP)
• Currency risks
• Disclosure None of us own the stock

10
Questions