Consumer Discretionary (S5cond) sTOCk outlook

1. Consumer Discretionary (S5cond) sTOCk outlook Basheer Almattar, Austin Blackerby, Cong Bui

2. Agenda

3. Sector Overview • “S&P'S 500 GICS Consumer Discretionary Sector Index is cap-weighted .Includes auto, household durables, textiles & apparel, leisure equipment, hotels, restaurants, other leisure facilities, media production & services and consumer retailing.” Sources Bloomberg Terminal

4. Consumer Discretionary Business Cycle Table Source: Fidelity's Investment

5. Consumer Discretionary Economic analysis INFLUENCING FACTORS

6. Consumer Discretionary Performance Year to Date Index performance in comparison to the S&P 500 Index 10 years Quarterly performance in comparison to the S&P 500 Index

7. Recommendation Relative to the S&P500

8. Agenda

9. Company overview Amazon is an online and traditional retailer which offers a wide range of consumer products. Furthermore, it offers cloud and enterprise software services in addition to a wide range of digital media and shipping services to consumers. Amazon and Consumer Discretionary over the past 5 years Business Segments: North America, International, Amazon Web Services (AWS)

10. Company Information Key Statistics (FY2017) Performance History 52-week high $1617.54 52-week low $833.50 1-year return 79% tICKERamzn sECTORConsumer Discretionary iNDUSTRYRetail - Discretionary pRICE AS OF 3/27/2018 $1,500 mARKETcAP$732.52B sHARE- DILUTED 484.1M Revenue $118.57B EPS $6.15 P/B 26.44 P/E 332.00 Beta 1.05 Market Data, Drivers and risk • Growth Drivers: • The growth of Amazon Prime membership • The synergies from various acquisitions • The growth in advertisement revenue • Cloud Services Growth • The growth of Amazon private label products • The positive outlook of the US and global economy. • Economic performance and cycle • Unemployment rate • Consumer Confidence Index • Oil Prices • Risks: • High P/E ratio • Competitive environment • The geopolitical risk of a trade war. • Management distraction.

11. Financial Analysis- DCF valuation Target Price: $1,770 Assumptions: Higher than consensus Lower than Company Guidance Facts: 2013 Growth Rate: 22% 2014 Growth Rate: 20% 2015 Growth Rate: 27% 2016 Growth Rate: 31% 2017 Growth Rate: 27%

12. Financial Analysis- Absolute valuation 41 ANALYSTS Recommendation: Buy Average Price: $1,712 Amazon Ratios vs. peers Amazon Target Price based on Multiples

13. Amazon Sim Recommendations SELL Current Weight : 616 BPS Proposed Weight: 500 BPS

14. Agenda

15. Company Description General Motors Co. engages in the designing, manufacturing, and selling of cars, trucks, and automobile parts. It also provides automotive financing services through General Motors Financial Company, Inc. The firm operates through the following segments: GM North America, GM International, and GM Financial. It sells vehicles under the Chevrolet, Cadillac, Baojun, Buick, GMC, Holden, Jiefang, Wuling, Maven, and OnStar brands. The company was founded by William C. Durant on September 16, 1908 and is headquartered in Detroit, MI. Industry: Automobiles & Components Primary Competitors: FCAU, F, Toyota, TSLA

16. Total Vehicle Sales

17. Business Segments – Total Net revenue • Around 77% of GM revenue comes from the GM North America vehicle sales • Vehicle Sales Internationally increased from 2016 to 2017, decreased in North America • Roughly 92% of Revenue comes from automobile sales

18. Total sales of Gm vs. Industry • Market Share in the North America has remained roughly the same over the past three years

19. Total sales by vehicle type • Trucks and larger vehicles have the highest profit margins, so it’s a positive to see such a large U.S. market share %

20. Revenue and gross profit growth • Although revenue decreased from 2016 to 2017, gross profit decreased by a smaller margin to due to significant cost saving efforts, such as closing factories that are unnecessary and selling off unprofitable international brands (such as Opel and Vauxhall)

21. Growth Drivers for GM • GM has invested heavily in both alternative energy vehicles, autonomous vehicles, and ride-sharing technologies • GM invested $500 million in Lyft, a 9% stake • GM plans to begin selling cars without pedals and steering wheels in 2019, will be manufactured in Detroit • Global economic growth • Cost saving initiatives, such as selling unprofitable brands and closing excess factories = higher operating margin • GMNA’s breakeven point is between 10 – 11 million units lower than it was under old GM (Morningstar) • GM’s US hourly labor cost is $9 billion lower than it was under old GM in 2005 (Morningstar) • Tax cuts will put more money in consumer pockets, more likely to make large purchases such as a new car or truck, may even incentive consumers to upgrade to luxury vehicles such as Cadillac vehicles • Acquisitions fueling innovation • Purchased Strobe last October, a driverless technology start-up focused on laser and radar technologies, to enhance development of autonomous vehicles • Acquired another autonomous vehicle start-up in May of 2016, called Cruise Automation Inc.

22. Growth Inhibitors for GM • Increasing interest rates increase financing costs for consumers • GM is once again facing a potential $1 billion stock payout related to defective ignition switches from 2014 • This case was supposedly resolved in February, but the claims resurfaced this month and could potentially cause GM to pay $1 billion to the ”old GM” trust, which is the assets left behind from the 2009 $50 billion government rescue and bankruptcy restructuring • Tariffs on steel and aluminum could potentially greatly increase the costs of production for auto makers • 90% of steel used by GM comes from U.S. • Morningstar estimates in a worst-case scenario the tariffs will cause a 1% increase in vehicle costs • Roughly 16% of GM automotive revenue comes from its international segments, so a trade war could impact the bottom line of GM • Increasing oil prices make consumers less likely to purchase trucks and SUVs, which have the highest profit margins of any vehicle type • U.S. auto market becomes more crowded each year, with brands such as Hyundai and Tesla taking over more market share each year

23. Comparison vs competitors • Stock price has had a rough YTD performance, but has higher EPS than its competitors

24. Relative Valuation • GM is currently trading at a discount to the automobile manufactures index on a P/E and P/EBITDA basis, and versus both the S5COND and S&P 500 on all relative metrics

25. Absolute valuation – Price Target • The automobile manufacturing industry trades at a major discount to both the S&P 500 and S5COND sector due to the risks associated with the industry, but the valuation metrics are all extremely low • These ratios should be higher, especially due to the current economic conditions • With higher target ratios, an average target price of $47.48 is given

27. DCF Sensitivity analysis

28. Recommendation and risks • GM is currently a large part of the SIM portfolio • I believe GM is undervalued by upwards of 35%, but due to the risks associated with the company and industry there is no need to buy more HOLD at 450 BPS

29. Risks to recommendation • Risks to stock decline: • Increasing interest rates and oil prices • Trade war • Pending litigation • Increased competition • Extremely cyclical nature of auto industry • Risks to not buying more with significant upside potential: • GM could establish itself as a dominant player in the autonomous and EV markets with lower costs vehicles compared to current dominate players such as Tesla • GM is well positioned to outperform competitors in an economic downturn compared to competitors due to a lower breakeven point and other significant cost saving advantages • Stronger than expected global economic growth • Large decrease in oil prices

30. Agenda

31. Company overview L Brands (LB - NYSE) is an American fashion retailer that sells lingerie, personal care and beauty products, apparel and accessories with such brands as Victoria’s Secret (including Pink), Bath & Body Works, Lacenza, and Henri Bendel Market: majority of sales is generated in North America, only < 4% coming from international market Fiscal Year ended Feb 3 2018

32. Company Information Key Statistics (FY2017) Performance History 52-week high $62.95 52-week low $36.06 1-year return -35.1% tICKERLB sECTORConsumer Discretionary iNDUSTRYRetail - Discretionary pRICE AS OF 3/27/2018 $38.21 mARKETcAP$10.79B sHARE- DILUTED 287M Revenue $12.63B EPS $3.42 P/E 11.07 Beta 1.05 FWD DIV 2.40 (6.09%) Market Data, Drivers and risks • Growth Drivers: • Revenue generated from company-owned mall-based specialty retail store; mall traffic • Pink and Bath & Body Works line of products • Online sales • International franchise, license and wholesale partner • Favorable consumer trends in fashion • The positive outlook of the economic conditions and consumer confidence • Major risks: • The struggle of Victoria’s Secret business due to change in consumer trend • Brick-and-mortar stores in the age of ecommerce • Highly competitive specialty retail business • Seasonality and inventory management

33. VALUATION - MULTIPLES

34. VALUATION - DCF • Assumptions: • Discount rate: 9.5% • Perpetual growth rate: 1.5% • Tax rate of next years: 21% • Victoria’s Secret segment will stabilize without further decline, while other segments maintain current level of growth in the next few years Implied equity value: 43.7

35. Recommendation HOLD Current Weight : 94BPS Proposed Weight: 94BPS

36. Recommendation – FOR & AGAINST • FOR • Brand strength; consumer loyalty • Limited direct competition of the same scale and price point • Performance expected to stabilize in 2018 with improving comparable sales growth through out fiscal 2017 • Pink, Bath & Body Works, digital sales likely to continue doing well • Consensus: • Bloomberg: • Buy/Hold/Sell: 10/16/3 • Target price: 49.35 • Nasdaq • Buy/Hold/Sell: 9/13/3 • Target price: 47.00 • AGAINST • The struggle of Victoria’s Secret business due to change in consumer trend • Brick-and-mortar stores in the age of ecommerce • Seasonality and inventory management

37. Agenda

38. Recommendations

39. Thank you What Questions do you have ?

40. GM DCF

41. GM Income Statement

42. Amazon Income Statement

43. Amazon DCF

44. DCF model

45. Income statement