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Consumer Staples Sector

Consumer Staples Sector. Summer 2013. Clay Daney Subrahmanyam Darbha. Agenda. Sector Overview Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recommendation. Sector Overview. Consumer Staples Sector (S5CONS)

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Consumer Staples Sector

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  1. Consumer Staples Sector Summer 2013 Clay Daney SubrahmanyamDarbha

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

  3. Sector Overview • Consumer Staples Sector (S5CONS) • Manufacturers of essential products such as food, beverages, tobacco, and household items • People are unable or unwilling to cut consumer staples out of their budget regardless of their financial situation. • Non-cyclical

  4. Industry Classifications

  5. The Key Players

  6. The Consumer Staples Sector • The SIM portfolio is overweight consumer staples by 189 bps SIM S&P 500

  7. QTD / YTD Performance

  8. QTD Performance

  9. YTD Performance

  10. Business Analysis

  11. Stock Market Cycles • “Cyclical”cycles = 4 years • “Secular” cycles = 30 years • 2011 - beginning of a cyclical bull market. • 2013 - tail end of cyclical bull market

  12. Business Analysis: Supply & Demand Dynamics • Low price elasticity of demand • Low beta • Low correlation to overall market • Producers grow by: • Reducing costs • Reducing prices • Differentiating products • Q: Why invest in staples? • A: Slow and steady long term growth

  13. The user and geography • Consumer Staples are essential products for consumers (domestic and foreign). • People are unable or unwilling to cut consumer staples out of their budget regardless of their financial situation.

  14. Porter’s Five Forces

  15. Economic Analysis: Profitability & Pricing • Predictability and steadiness • - helps match supply and demand closely • Economies of scale • - can be achieved relatively faster • Non cyclical nature of the sector • - steady growth with regular dividends throughout • economic and business cycles • Overall, the sector is well positioned for better profitability & pricing

  16. Financial Analysis

  17. Correlation - Consumer Staples & Other SPX500 sectors ’09 -’12 Weighted Moving Average of Price

  18. Regression - Consumer Staples & Other SPX500 sectors ‘09-’12 Source | SS df MS Number of obs = 209 -------------+------------------------------ F( 10, 198) =10983.87 Model | 378539.277 10 37853.9277 Prob > F = 0.0000 Residual | 682.371554 198 3.44632098 R-squared = 0.9982 -------------+------------------------------ Adj R-squared = 0.9981 Total | 379221.649 208 1823.181 Root MSE = 1.8564 ------------------------------------------------------------------------------ s5cons | Coef. Std. Err. t P>|t| [95% Conf. Interval] -------------+---------------------------------------------------------------- s5cond | -.5593398 .0628114 -8.91 0.000 -.6832049 -.4354747 s5hlth | -.758003 .0577293 -13.13 0.000 -.8718461 -.6441598 s5finl | -1.48988 .0899044 -16.57 0.000 -1.667173 -1.312586 s5util | .0567482 .0491653 1.15 0.250 -.0402066 .1537031 s5enrs | -.5348346 .032419 -16.50 0.000 -.5987654 -.4709039 s5inft | -1.176365 .0686285 -17.14 0.000 -1.311702 -1.041028 s5indu | -1.205989 .066378 -18.17 0.000 -1.336888 -1.075091 s5tels | -.7536217 .0552162 -13.65 0.000 -.862509 -.6447344 s5matr | -.2879355 .0292043 -9.86 0.000 -.3455269 -.2303441 spx | 1.883624 .1096506 17.18 0.000 1.667391 2.099857 _cons | -34.93129 4.583659 -7.62 0.000 -43.97035 -25.89224 ------------------------------------------------------------------------------ Weighted Moving Average of Price

  19. Reg., Corr., Ratio - Consumer Staples on SPX500 (past 5 yrs.)

  20. Reg., Corr., Ratio - Consumer Staples on SPX500 (past 1 yr.)

  21. Spread Analysis (5yrs.)

  22. Spread Analysis (1yr.)

  23. Total Returns (monthly) - Consumer Staples (past 5 yrs.)

  24. Total Returns (monthly) - Consumer Staples vs. SPX500 (5 yrs.)

  25. Interpretation of Valuation Metrics • In general, Ratios/Margins are interpreted relative to other similar companies, Industry averages. • Stability of these ratios over time is an important indicator of risk or other appropriate parameters. • Eg. Profitability Ratios • Gross Profit Margin – relative cost to price standing • Operating Profit Margin – measure of profitability (creditworthiness) • Cash Flow to Sales – measure of productivity and creditworthiness • Return on Assets – measure of amount of income generated per total assets

  26. Key highlights - valuation metrics & fundamentals Periodicity: Annual; Currency: USD; Units: Billion

  27. Key highlights - Leverage & Liquidity Periodicity: Annual; Currency: USD; Units: Billion

  28. Fundamentals - Income Statement Periodicity: Annual; Currency: USD; Units: Billion

  29. Fundamentals - Balance Sheet

  30. Fundamentals - Cash Flow Periodicity: Annual; Currency: USD; Units: Billion

  31. Financial Analysis:Margins

  32. Operating Profit Margins

  33. Gross Margins

  34. T12M EBITDA Margins

  35. Profit Margins

  36. Financial Analysis:Earnings

  37. Earnings per Share

  38. Financial Analysis:Price Ratios

  39. Price/FCF

  40. Price/Earnings

  41. Price/Book

  42. Price/Sales

  43. Current EV/T12M EBITDA

  44. Financial Analysis:Equity Returns

  45. Return on Assets

  46. Return on Equity

  47. Return on Capital

  48. Financial Analysis:Income Statement

  49. Revenues

  50. Operating Profit Margins T12M

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