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Consumer Discretionary Sector

This insightful report from July 2009 analyzes the Consumer Discretionary sector's composition within the S&P 500, detailing its top industries and companies, which collectively are valued at $688 billion. Key economic indicators like disposable income, consumer spending, and the unemployment rate are examined, highlighting their correlations with sector performance. The report also includes financial analyses such as net profit margins and revenue growth, culminating in a recommendation to maintain an underweight position in the sector due to the projected economic challenges.

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Consumer Discretionary Sector

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  1. Consumer Discretionary Sector July 21, 2009 Joshua Anderson, Kunal Arora, Branyan Booth, Joseph Chandraraj

  2. Sector Overview - S&P 500 Composition Sectors as % of S&P 500

  3. Sector Overview – Top 10 Industries Industries as % of Consumer Discretionary Sector $688 billion % of sector

  4. Sector Overview – Top 10 Companies $688 billion

  5. Sector Overview – 5 Year Returns

  6. Sector Overview - YTD & QTD Returns

  7. Business Analysis – Porter’s 5 Forces

  8. Economic Analysis - Disposable Income • High correlation with • disposable income • Sharp increase in 2003, peak of 12% in early 2007 • Continuous drop since second half of 2007

  9. Economic Analysis - Consumer Spending • High correlation with • consumer spending • Sharp increase in 2003, peak of 12% in early 2007 • Continuous drop since second half of 2007

  10. Economic Analysis – Personal Saving Rate • Saving Rate = Disposable Income – Consumer Spending • Disposable Income • Consumer Spending • Saving Rate • Saving Rate currently at 6.9% (15 year high) and projected to hit 10% • Is there a change in consumer behavior with home value going down, consumer is more cognizant of saving?

  11. Economic Analysis - Unemployment Rate • High negative correlation with unemployment rate • With unemployment projected to hit double digits by end of the year, consumer discretionary sector will be negatively affected

  12. Economic Analysis - Home Sales • R = 0.50 strong positive correlation • Leading indicator for the overall economy

  13. Financial Analysis – Net Profit Margin

  14. Financial Analysis – Net Profit Margin

  15. Financial Analysis – Top Industries Net Profit Margin

  16. Financial Analysis – Sector ROE

  17. Financial Analysis - Major Companies Revenue Growth

  18. Valuation Analysis - Sector P/CF

  19. Valuation Analysis - Sector P/S

  20. Valuation Analysis - Sector forward P/E

  21. Valuation Analysis - Industry 17.5

  22. Recommendation Hold current underweight position of 146bps, why? Hold current underweight position of 146bps “S&P recommends underweighting the S&P 500 Consumer Discretionary sector…” Standards & Poor’s 7/12/2009

  23. Questions???

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