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Consumer Staples Presentation

Consumer Staples Presentation. August 4, 2009 Shane Connor Josh Drushel Jessica Kirwin. Agenda. Update of Sector Recommendation Stock Recommendations Summary Questions. Consumer Staples Recap. SIM Current Holdings – 11.65% S&P 500 – 11.81% Sector Characteristics Stable demand

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Consumer Staples Presentation

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  1. Consumer Staples Presentation August 4, 2009 Shane Connor Josh Drushel Jessica Kirwin

  2. Agenda • Update of Sector Recommendation • Stock Recommendations • Summary • Questions

  3. Consumer Staples Recap • SIM Current Holdings – 11.65% • S&P 500 – 11.81% • Sector Characteristics • Stable demand • Defensive (non-cyclical) • International Growth could be a bonus • Class approved 25 bps increase

  4. Sector Holdings Current Holdings SIM – 11.65% • PepsiCo – 4.44% • Wal-Mart Stores Inc – 3.00% • Colgate Palmolive – 2.13% • Philip Morris Int’l – 2.09% • weights as of 7/31/09 • Recommended Holdings • SIM – 11.90% • PepsiCo – 3.94% • Wal-Mart Stores Inc – 3.00% • Safeway – 2.88% • Philip Morris Int’l – 2.09%

  5. Colgate-Palmolive (NYSE:CL) • Company Overview: CL has been manufacturing and marketing consumer products worldwide since 1803. It operates under two segments which are oral, personal, and home care as well as pet nutrition. • Recommendation: Sell 234 basis points • Investment Thesis: CL is a very stable performer in both good and bad economies, but due to the classes decision that the economy is turning around we feel there are much better opportunities that persist.

  6. Industry: Personal and Household Products

  7. Price Target Final Price Target= 75% DCF PT + 25% Valuation PT= $77.03 Closing price 8/4/09 = $72.21 Implied Upside= Price Appreciation + Dividend Yield = 9.13%

  8. Positives/Risks • Positives - Stable performer in all types of economies - Potential for continued international growth - Safe bet investment • Risks - Recession may only be beginning internationally - Continued loss of market share domestically - Investing in CL and the economy completely turns around

  9. Philip Morris Int’s (NYSE:PM) Company Overview: PM is the leading international tobacco company with 7 of the world’s top 15 brands Recommendation: Hold current position Investment Thesis: PM is a stable performer

  10. Industry: Tobacco As of 8/2/09

  11. Price Target Final Price Target= 75% DCF PT + 25% Valuation PT= $50.76 Implied Upside= Price Appreciation + Dividend Yield = 18.2%

  12. Positives / Risks • Positives • Lower litigation risk compared to U.S. • Products sold in over 160 countries • Prices of products increased to enhance profitability (2009) • Free Cash Flow of $6.8 Billion in 2008 • Owns 7 of the world’s top 15 brands – including Marlboro the #1 Brand Worldwide • Customers are addicted to its products • Risks • Increased excise taxes in Europe • Value of the dollar • The potential of increased regulation abroad

  13. PepsiCo (NYSE:PEP) Company Overview: PepsiCo manufactures, markets, and sells various snacks, carbonated and non-carbonated beverages, and foods worldwide Recommendation: Sell 50 bps Investment Thesis: PepsiCo is a stable performer that has a diversified product line and good international growth. I feel the company is currently undervalued.

  14. Merger with PBG and PAS • PepsiCo announced today merger agreements with The Pepsi Bottling Group Inc. and PepsiAmericas, Inc. • Total cost will be 7.8 billion • Pepsi Bottling Group • $36.50 / share or .6432 PepsiCo shares • PepsiAmericas • 25.50 / share or .5022 PepsiCo shares • Create annual pre-tax synergies of 300 million by 2015

  15. Industry: Beverages

  16. Price Target Final Price Target= 75% DCF PT + 25% Valuation PT= $69.15 Implied Upside= Price Appreciation + Dividend Yield = 26.2%

  17. Positives / Risks • Positives • Frito-Lay brand • Acquisition of PBG and PAS • Continuing foreign investment • Low cost environment • Risks • Merger integration issues • Continuing weak performance by Americas Beverage segment • Private label growth • Possible sales tax on carbonated soda beverages

  18. Safeway (NYSE:SWY) Company Overview: Safeway is a food and drug retailer founded in 1915 and headquartered in California. They operate over 1,700 grocery stores in western and central U.S. as well as Canada and Mexico. They are the third largest grocery retailer. Recommendation: Buy 288 basis points Investment Thesis: We feel that Safeway is well positioned to benefit from a broad economic recovery. The company has an attractive FCF yield and is aggressively buying back shares.

  19. Current Situation • YTD :Safeway (-18.4%) vs. S&P 12.67% Lowered Guidance (2.10-2.30) Missed Analysts EPS est. Lowered Guidance (1.70-1.90)

  20. Positives • Positives - Attractive Valuation - Strong Free Cash Flow - History of share repurchases

  21. Positives Cont. • - More sensitive to economic recovery

  22. Risks • Risks -Unemployment continues to rise

  23. Risk Cont. -Food prices (disinflation) -Margin compression -Continuing same store sales declines

  24. Industry: Retail Food

  25. Safeway Price Target Final Price Target= Valuation PT + Risk Factor = 24.40 Implied Upside= Price Appreciation + Dividend Yield = 30.3%

  26. Thank You • Questions?

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