1 / 41

Comprehensive Analysis of the Industrials Sector: Insights and Recommendations

This report provides a detailed examination of the Industrials sector, including business, economic, and financial analyses. It highlights the sector's maturity phase with stabilizing growth, key drivers such as production and manufacturing, and correlations with the S&P 500. Analyzing catalysts and risks, the document emphasizes emerging market opportunities and challenges posed by government spending and currency fluctuations. Valuation metrics and investment recommendations are provided for key industries including capital goods, aerospace, and transportation, considering the current economic context.

bert-montoya
Télécharger la présentation

Comprehensive Analysis of the Industrials Sector: Insights and Recommendations

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Industrials Sector Jason Kraynak and Wade Guzdanski

  2. Agenda • Overview • Business Analysis • Economic Analysis • Financial Analysis • Valuation Analysis • Recommendation

  3. Overview

  4. Industrials • Capital Goods • Aerospace & Defense, Construction & Engineering, Electrical Equipment, Building Products, Machinery, Trading & Distributors • Commercial Services & Supplies • Commercial Printing, Data Processing, • Transportation • Air Freight & Logistics, Airlines, Marine, Road & Rail, Transportation Infrastructure • Market Cap of $1.55 Trillion

  5. Industrials Avg. % of S&P 500 Source: Factset

  6. SIM Portfolio Weight – 6/23/2013 • Industrials account for 10.7% of S&P 500, portfolio is currently underweight 234bps

  7. Current SIM Holdings • Shares in Danaher Corporation were sold as part of move to reduce portfolio to $10M prior to fiscal year-end

  8. Sector Industries • 88% of sector is comprised of three industries: Electronic Technology, Producer Manufacturing and Transportation

  9. Largest Companies

  10. Industrials Performance

  11. Business Analysis

  12. Industrials Life Cycle • Industrials sector is in the “Maturity” phase • Slow stable growth, consistent with overall economy • Consistent returns and cash flow • Low number of new entrants • Dominated by a few large companies

  13. Business Cycle Impact • As the economy improves, companies increase capital spending in response to higher demand for products • Leads to expansion in production capacity • Global sector • Significant influence from domestic and international economies • Growth focused in emerging markets

  14. Catalysts & Risks • Catalysts • Europe coming out of their recession • Turnaround in China • Growth in emerging markets • Risks • Lower government spending • Strengthening US Dollar • Uncertainty regarding monetary policy • Slow global growth forecast

  15. Porter’s Five Forces

  16. Economic Analysis

  17. Industrials Drivers • High Correlation to overall equity market • Production & Manufacturing • GDP • Unemployment • Crude Oil • Housing

  18. Industrials & S&P 500 highly correlated 10 Years Industrials S&P 500

  19. Industrials & S&P 500 highly correlated 5 Years Industrials S&P 500

  20. Industrials & S&P 500 highly correlated 2 Years Industrials S&P 500

  21. Industrial Production • Measures real output of manufacturing, mining, and electric and gas utilities • Industrials sector accounts for the bulk of the variation • Manufacturing very soft based on May data. • Excluding motor vehicles, manufacturing rose only 0.1% in May • Capacity utilization decreased to 77.6% in May from 77.7% in April Data source: Haver Analytics

  22. Durable Goods Orders • Reflect new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods • Extremely volatile • Up 3.6% in May • Transportation up 10.2%, making up most of the gains Data source: Haver Analytics

  23. ISM Manufacturing Index • Survey of 300 manufacturing firms: employment, production, new orders, deliveries, inventories • >50 = expanding <50 = contracting currently 50.9 • Strength from new orders and export orders • Weaknesses from employment, inventories, and prices • Slow growth Data source: Haver Analytics

  24. GDP • Revised down to 1.8% from 2.4% led down by personal consumption • Headline inflation at 1.2% • Economic Growth marginally positive in Q1 with low inflation • What will the Fed do? Data source: Haver Analytics

  25. Unemployment Data source: Haver Analytics

  26. Crude Oil – Highly Correlated 5 Years

  27. Housing – Existing Home Sales • Up 4.2% to annual sales rate of 5.18 million, highest since late 2009 • Median price up 8.4% in May to $208,000 mean $255,300 Data source: Haver Analytics

  28. Housing – New Home Sales • Up 2.3% to annual rate of 454,000 • Median price up 8.3% in May to $271,600 mean $330,800 Data source: Haver Analytics

  29. Housing – Housing Starts • We need equipment, tools, and material to build! • Thank you Ben Bernanke! Data source: Haver Analytics

  30. Financial Analysis

  31. Revenue Growth Slow & In-Line with S&P 500 • 5 Year CAGR: Industrials Sector 2.7%, S&P 500 2.5%

  32. Margin Growth Lags S&P 500 • Industrials sector operating margin lags S&P 500 • 5 Year CAGR: Industrials Sector -0.7%, S&P 500 0.9% • Mixed results in net profit margin • 5 Year CAGR: Industrials Sector 2.5%, S&P 500 3.5%

  33. Significant R&D and Capex Spend • Increase in R&D spend as a percent of sales • 5 Year CAGR: Industrials Sector 2.2%, S&P 500 -2.9% • Capital intensive industry, capex as a percent of sales is increasing but trailing S&P on percent growth • 5 Year CAGR: Industrials Sector -0.7%, S&P 500 0.6%

  34. ROE is a Concern, but Rebounding • Industrials sector operating margin lags S&P 500 • 5 Year CAGR: Industrials Sector -2.2%, S&P 500 3.7% • Mixed results in net profit margin • 5 Year CAGR: Industrials Sector 7.9%, S&P 500 -0.6%

  35. Consistent Generated of FCF, Lags S&P 500 • 5 Year CAGR: Industrials Sector -1.1%, S&P 500 23.4%

  36. Valuation Analysis

  37. Industrials Valuation

  38. Industrials Valuation

  39. Recommendation

  40. Recommendation • Currently -234bps underweight • We recommend no change in weighting of industrials • Reasons for concern • Slow global growth • GDP forecasts • Economy is still early in recovery phase • Foreign political uprisings • Low growth potential – valuation suggests sector is inline • Why we may be wrong • Recent housing recovery • Possible energy independence (lower production costs = higher margins) • Faster economic expansion • Consumer sentiment

  41. Questions?

More Related