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General Body Meeting 04-25-12

General Body Meeting 04-25-12. Welcome. News Updates. Macro. French Elections. 5. Sarkozy vs . Hollande. 6. First round results Hollande : 28.8% Sarkozy: 26.1% Right: 18.5% Left: 11.7% Center 8.8% Runnoff : Sarkozy v.s . Hollande (+ Left & Center )

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General Body Meeting 04-25-12

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  1. General Body Meeting 04-25-12

  2. Welcome

  3. News Updates

  4. Macro

  5. French Elections 5

  6. Sarkozy vs. Hollande 6 • First round results • Hollande: 28.8% • Sarkozy: 26.1% • Right: 18.5% • Left: 11.7% • Center 8.8% • Runnoff: Sarkozy v.s. Hollande (+ Left & Center) • First time that incumbent didn’t have majority • Outcome (still) uncertain, leaning towards Hollande • vs. Globalization, EU and cooperation with Germany • vs. Austerity

  7. Energy

  8. Argentina Nationalizes YPF • Argentina is one of the few countries that doesn’t control its own oil • In the face of slumping oil output and investments by YPF, Argentine President expropriated Spanish owned, YPF, the nation’s largest crude oil producer(34%) and refiner(50%) • Ousting the Spanish owners Repsol(57.4% stake) • Setting a terrible precedent • “expropriating assets rather than going through fair market means to gain control of a company effectively closes the country off to foreign-direct investments” • Retaliation by the EU could risk Argentina exports to its 2nd largest trading partner

  9. Two Minute Drill Guest Lecturer: Shayra Kamal Topic: Healthcare Pipeline

  10. Increased Bidding for Medicare Supplies • Administration announced using competitive bidding to buy Medicare supplies in order to save money for patients and taxpayers • Sharp break from fee-for-service purchasing for Medicare patients • Health and Human Services reports bidding pilot program already saved $202 million (reduced Medicare costs by 42%) • Mainly from purchases in oxygen equipment and wheelchairs • Expansion for bidding planned to cover over 100 metropolitan areas by in 2013 and the entire country by 2016 • MD&D providers that start off at low bids at distinct advantage • Expected savings of $25.7 billion to Medicare program in 10 years

  11. 2 Minute Drill Healthcare Pharmaceutical Pipelines

  12. Pipeline • Set of unique compounds ,devices, and processes that a company has in development at any given time • Primary tool used to evaluate R&D activities, spending, and overall potential for success and growth • More pipeline compounds=greater valuation

  13. FDA Approval • Food and Drug Administration (FDA) is primary agency that process applications for drugs to exit compound and enter market, including patent protection for prescription drugs • Can take up to 10 years from synthesis of pipeline compound to final approval • Backlog of over 100,000 application per year

  14. Clinical Trials • Three stages of drug development in FDA approval process • Pre-clinical, clinical, and marketing (post-approval) • Three phases of clinical trials determined by number of human and animal subjects in each phase • Phase I has fewest subjects, Phase III the most • Pipeline with majority of drugs in Phase II/III expected to rollout drugs within 2-5 years • Clinical trials results often used to increase investor confidence

  15. JNJ Pharmaceutical Pipeline

  16. TEVA Innovative Pipeline

  17. Apple (AAPL) Technology Sector AleksandarZvorinji GuoJie Chin Jerald Watson Morgan Beller James Ying Raj Merchant

  18. Investment Thesis • Ecosystem that connects success in one generation of devices to successive consumer purchases • Top-line growth that is unjustified in light of several near- and long-term growth drivers • Big iPhone (130MM) /iPad (60MM) unit revisions • Short: upside to iPhone shipments, new Macbook Air, the new iPad • Long: iPhone upgrade cycle, lower priced 3G iPhone, larger tablet market, continued Apple market dominance, expanding distribution in China, and potential for Apple to enter the Smart TV market in 2012-13.

  19. Company History • Apple is a multinational corporation focused on designing and selling consumer electronics, software, and personal computers. • Mainstream products include mobile communication and media devices such as iPod, iPad, iPhone • Founded in 1976 by Steve Jobs, Ronald Wayne, and Steve Wozniak • As of Sept. 2011, there are 357 retail stores worldwide • Currently the largest publicly traded company • Market Cap: > 530 billion

  20. Product Description • iPod • First released in October 2001, iPod is now in its 8th generation, and has four different products in its line: shuffle, nano, classic, touch • iPhone • Originally launched in 2007, iPhone has sold over 100 million units. The latest iPhone 4s sold over four million within the first three days of release. • Macbook/iMac • Macbook Pro, debuted in 2006, is the highest selling personal computing apple device.

  21. Revenue and Profit Margins

  22. Revenue Breakdown (Geo)

  23. Revenue Breakdown (Product) As of Q1 2012: • Macs (desktops/laptops): 14.24% • iPod: 5.46% • iPhone (including software sales): 52.70% • iPad (with software) : 19.75% • Peripherals: 3.47%

  24. Quick Comparison Q1 2012: • Total Revenue – 46.33 billion • EBITDA: 18.06 billion (Operating Margin: 38.98%) • Net Income: 13.06 billion (Net Margin: 28.19%) Competitor figures: • Google • Operating Margin: 32.11% Net Margin: 27.09% • Hewlett-Packard: • Operating Margin: 8.41% Net Margin: 4.75% • Microsoft • Operating Margin: 38.44% Net Margin: 31.95%

  25. SWOT Analysis

  26. Short Term Drivers: Pros • FQ2 earnings blow past expectations • Tuesday: earnings surged 93% in the March quarter, largely powered by stronger-than-expected sales of the iPhone • Set up well for months ahead and iPhone 5 release • CEO, Tim Cook: PC market is slow overall (probably partly due to the iPad), but that the Mac still outperformed the rest of the market • Spain: subsidies cut by country's wireless carrier • Bifurcation of iPhone pricing to capture emerging market demand • Improved iPhone and iPad shipment momentum • Rising gross margins driven by iPhone and iPad scale

  27. Short Term Drivers: Cons • Threats • Android (HTC, Samsung), Windows 8 (Nokia), Kindle • Shortage of 28-nanometer chipsets used in smartphone devices from Qualcomm • No current phones use them but may delay iPhone 5 release • Cook dismissive of idea to combine PC and tablet

  28. Long term drivers • Risk-reward profile • Revenue and earnings growth • Market penetration rates in tablets, PCs, China and enterprise • Enabling the burgeoning social media/networking adoption curve • Expanding store, online and carrier distribution in China or other developing markets • Returning cash to shareholders through buybacks and dividends • Shipment upside and continued evolution of the iPad line • Potential Smart TV launch in 2013

  29. Investment Risks • Android competition in smartphones, and Android and Windows competition in tablets • Regulatory and legal risk as Apple gains profit share momentum in mobile devices • Weak global consumer demand • Rate of new product cycles / CEO transition

  30. Main Competitors • Personal Computers: Acer, Dell, HP, Lenovo, Samsung Electronics • Wireless Handsets: HTC, Nokia, RIM, Samsung Electronics • Software/Media: Microsoft, Google, Amazon

  31. The PC Market: Steady Growth

  32. PC Market: A Paradigm Shift

  33. King of Tablets

  34. PC Market: All About Margins

  35. Wireless Handsets

  36. Solid Growth

  37. Competitive Analysis • Unrivaled margins among hardware manufacturers • Supreme (and increasing) market share • Innovation leader with phenomenal growth • Threats: Android (HTC, Samsung), Windows 8 (Nokia), Kindle

  38. Earnings Release • April 24, 2012 Apple Released Earnings Reports for the first quarter of 2012 • Total Revenue: $39.2 Billion (59.7% Increase Year over Year) • Net Profit: $6 Billion (94% Increase Year over Year) • EPS: $12.3 (92% Increase Year over Year) • Gross margin rose slightly to 47.4 percent • Beat expert estimates of 10.08 EPS

  39. Earnings Release (2) • iPhone 4s and iPad sales were the primary drivers of revenue within the quarter • 35.1 Million iPhones Sold (88% Increase Year over Year) • 11.8 Million iPads Sold (151% Increase Year over Year) • International sales attributed to over 64% of the quarter’s total revenue • Apple CEO Tim Cook promises further innovation “across the year”

  40. Valuation • Bloomberg price target blend: $720 • Upside: +18%

  41. DCF ∑ price matrix X probability matrix = $798 Upside: +31%

  42. Technical Analysis

  43. Williams %R • Williams %R • Current = -40.95%

  44. Bollinger Bands • Bollinger Bands • April 25 Lower Bound = 566.64, Upper Bound = 642.52, Price = 607.87

  45. Relative Strength Index • Relative Strength Index (RSI) • Current: 54.89

  46. MACD • Moving Average Convergence Divergence (MACD) • Current: 1.49%

  47. Summary • Ecosystem that connects success in one generation of devices to successive consumer purchases • Strong valuation (big upside) • Short: upside to iPhone shipments, new Macbook Air, the new iPad • Long: iPhone upgrade cycle, lower priced 3G iPhone, larger tablet market, continued Apple market dominance, China (emerging markets), Smart TV market • Returning cash to shareholders through buybacks and dividends • Recommendation: Buy 4 shares at $610 for $2,440.

  48. Whole Foods Market, Inc. (WFM) Analysts: Adrian Diaz-Granados, Andrea Cheung, Michael Wolcott, Tom Jaeger

  49. Company History & Overview • Founded: 1980 • Headquarters: Austin, Texas • Over 310 stores in the U.S., Canada, and the U.K. • Began expanding to other domestic markets in 1984 by acquiring other natural food retailers • Entered Canadian market in 2002 and the U.K. market in 2004

  50. Management Structure & Culture • Co-CEOs • John Mackey (Co-Founder) • Ernst & Young CEO of the Year in 2003 • Walter Robb • The work culture is centered on the company’s grassroots level management, which helps it eliminate bureaucracy • Tight-knit team of five senior executives have functioned as a sort of CEO committee for the past 10 years • Great employee relations that create a fun and exciting atmosphere • Excellent training program • Diverse workforce: 44% women, 43% minorities

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