Consumer Staples Company Presentation

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Consumer Staples Company Presentation

• Des Dudaney
• Erica Elsasser
• Neil Hertenstein
• Mun Yi Se Tho
• May 18th, 2010

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Table of Contents

1. Sector Summary
2. Company Comparison
3. PepsiCo Analysis
4. P G Analysis
5. Recommendation

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Recommendation

• Sell 67 BP of Pepsi
• Sell 40 BP of PG
• Hold Philip Morris
  Wal-Mart

Recomm-endations
4
Sector Summary
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SIM Portfolio
Sector SP 500 Weight SIM Weight /-
Consumer Discretionary 10.55 10.44 -0.11
Consumer Staples 10.91 11.71 0.80
Energy 11.18 9.76 -1.43
Financials 16.47 11.41 -5.07
Health Care 11.55 14.63 3.07
Industrials 10.76 13.10 2.34
Information Technology 18.91 20.18 1.27
Materials 3.45 1.64 -1.82
Telecommunication 2.73 3.70 0.98
Utilities 3.48 2.10 -1.38
Weights as of 4/30/2010
Sector Summary
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CS Sector Recap

• Decrease weight of Consumer Staples by 107 basis
  points
• Provides a 27 bp underweighting
• Defensive sector and lower returns in economic
  growth
• Allows more cyclical sectors to experience higher
  gains

Sector Summary
7
Sector Holdings

• Current Holdings
• SIM 11.71
• PepsiCo2.90
• Wal-Mart Stores Inc2.78
• Philip Morris Intl..2.96
• Procter Gamble3.07
• Weights as of 4/30/2010

• Recommended Holdings
• SIM 10.64
• PepsiCo.2.23
• Wal-Mart Stores Inc.2.78
• Philip Morris Intl...2.96
• Procter Gamble.2.67

Sector Summary
8
Target Prices
Company Current Price Target Price Dividend Upside Potential
Philip Morris 46.25 57 4.9 28.1
Procter Gamble 63.38 72 3.1 16.7
Wal-Mart 52.73 62 2.3 17.6
PepsiCo 66.75 74 2.7 13.6
Prices as of 5/13/2010
Sector Summary
3/13/2016
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Target Prices of Sector Stocks in SP
Sector Summary
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Company Information
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Philip Morris - Hold

• Philip Morris International Inc. (PM) is the
  leading international tobacco company.
• Spin-off from Altria(MO) in 2008.
• PM owns seven of the worlds top 15 brands
• Brand portfolio includes Marlboro, the number one
  cigarette brand worldwide.
• Products sold in approximately 160 countries.
• As of 2008, the company held an estimated 15.6
  share of the total international cigarette market
  outside of the U.S.

Company Comparison
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Wal-Mart Stores - Hold

• Wal-Mart Stores, Inc. operates various formats of
  retail stores and restaurants, including
  combination discount and grocery stores,
  supercenters, Sam?s Clubs, hypermarkets,
  cash-n-carry stores, department stores, and
  general merchandise stores
• Attractive Valuation
• Big move to online sales, ad campaign etc.
• Improved merchandising capabilities, capital
  efficiency, inventory management
• Very non-cyclical

Company Comparison
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PepsiCo

• PepsiCo, Inc., founded in 1898, manufactures,
  markets, and sells numerous foods, snacks, and
  carbonated and non-carbonated beverages
  worldwide.
• Market capitalization of 106.55 billion.
• PepsiCo owns hundreds of brands around the world,
  but the most recognizable include

Company Comparison
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Procter Gamble

• The Procter Gamble Company (PG), founded in
  1837, engages in the manufacture and sale of
  consumer goods worldwide.
• The company operates in 3 global business units
• Beauty
• Health and Well-Being
• Household Care
• Products are sold in over 180 countries worldwide

Company Comparison
15
PepsiCo Analysis
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EPS Growth

• EPS is expected to increase, but remain
  significantly lower than before.

PepsiCo Analysis
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ROE Relative to SP 500

• ROE has been on a slight upward trend, but is
  expected to decrease.

PepsiCo Analysis
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EBITDA Relative to SP 500

• EBITDA Margin is expected to decrease.

PepsiCo Analysis
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Profit Margin Relative to KO

• Net profit margin is lower than Coca-Colas.

PepsiCo Analysis
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Cash Flow per share
PepsiCo Analysis
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Technical Analysis
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Discounted Cash Flow
PepsiCo Analysis
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Sensitivity Analysis
PepsiCo Analysis
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Target Price
PepsiCo Analysis
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PepsiCo Recommendation

• Benefits
• Global leadership in the snack business
• Expand snack business in developing and emerging
  markets
• Taking advantage of the coincidence of
  consumption in snacks and beverages
• Purchase of PBG and PAS bottlers
• Focus on health and wellness
• Expand the Good for You portfolio
• Continue to make core snacks healthier through
  innovations in heart-healthy oil, sodium
  reduction and the additions of whole grains, nuts
  and seeds.
• Risks
• Failure to realize US bottler integration/synergie
  s
• Currency Volatility 48 of PepsiCo revenue is
  from operations outside the US. Largest
  operations are in North America (US, Canada,
  Mexico) and UK

Recommendation Sell 67 bps Current Price
66.75 Target Price 74.00 Implied Upside 13.6
PepsiCo Analysis
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Procter Gamble Analysis
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EPS Growth

• EPS growth is expected to remain negative.

PG Analysis
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ROE

• ROE is at low levels of the decade.

PG Analysis
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EBITA Margin Relative to JNJ

• EBITDA margin is below JNJ.

PG Analysis
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Net Profit Margin

• Net Profit Margin has low growth rate and is
  expected to remain so.

PG Analysis
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Technical Analysis
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Absolute Valuation
PG Analysis
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Relative Valuation to SP 500
PG Analysis
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Relative Valuation to Industry
PG Analysis
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Price Target
72.162
PG Analysis
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Discounted Cash Flow Model
PG Analysis
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Sensitivity Analysis
PG Analysis
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Procter Gamble Recommendation
Recommendation Sell 40 bps Current Price
63.38 Target Price
72.00 Ratios 72.16 DCF
71.97 Implied Upside 13.6 Dividend
yield 3.1 Implied Upside w/
Dividend 16.7
PG Analysis
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Procter Gamble Risks and Benefits

• Risks
• Currency Volatility
• Pampers Lawsuit
• Changes in consumer spending
• Lower upside relative to other consumer staple
  companies

• Benefits
• International initiative
• Product Expansion
• Product leadership
• Increased Advertising
• Very defensive
• Consistent dividends

PG Analysis
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Recommendations
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Stock Recommendation

• Sell 107 bp
• Sell 67 bp of Pepsi
• Sell 40 bp of Procter Gamble
• Limited potential upside in both stocks
• Hold Wal-Mart and Philip Morris due to high
  upside
• Sale of 107 bp in our sector will allow other
  sectors to utilize it to gain better returns for
  the portfolio
• Risks
• Sale of 107 bp will leave the portfolio less
  defensive should the economy decline again

Recomm-endations
42
Questions?