Upload
zorro29
View
611
Download
0
Embed Size (px)
DESCRIPTION
Citation preview
Consumer Staples SectorConsumer Staples Sector
CHANG JUNG-HOONCHANG JUNG-HOON
CLEMENT LEANNE NICOLECLEMENT LEANNE NICOLE
CRAWFORD BETHANY ANNCRAWFORD BETHANY ANN
May 2, 2006
2Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Table of Contents
• Sector Overview
• Financial Overview
• Business and Economic Analysis
• Valuation Analysis
• Investment Strategy
3Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
S&P 500 Weights
S&P 500 Weights
10.27%
9.57%
9.55%
3.28%
15.29%3.35%11.34%
2.98%
21.10%
13.28%
Cons Discr Con Staples Energy Utilities Info Tech
Telecom Industrials Materials Financials Health Care
4Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Current SIM Weights
SIM Weights
8.80%10.91%
9.42%
1.15%
16.77%2.37%12.15%
1.87%
19.87%
16.35%
Cons Discr Con Staples Energy Utilities Info Tech
Telecom Industrials Materials Financials Health Care
5Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Consumer Staples Industries
• Beverages (8)
• Food & Staples Retail (11)
• Food Products (11)
• Household Products (4)
• Personal Products (3)
• Tobacco (3)
6Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Our Holdings
• Anheuser-Busch – Beverage• Procter & Gamble – Household Products• Wal-Mart – Food & Staples Retail• Sysco Corp – Food & Staples Retail
7Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
How are we doing??
Shares Price Pd Current Price Gain/(Loss)
BUD 15,700 $ 44.55 $ 44.58 $471.00
PG 13,900 $ 50.30 $ 58.21 $109,949.00
WMT 7,300 $ 47.91 $ 45.03 $(21,024.00)
SYY 12,200 $ 35.38 $ 29.89 $(66,978.00)
$22,418.00
8Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
How is the Sector Doing??
• QTD – 0.62%• YTD – 1.60%
Financial OverviewFinancial Overview
10Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Income Statement Ratios
11Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Balance Sheet Ratios
12Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Cash Flow
13Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Revenues & Margins
14Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Relative Revenues & Margins
15Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Dupont Analysis
Business and Economic Analysis Business and Economic Analysis
17Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Demand
• Mature industry – steady demand in United States• Room for growth overseas• Dependent on GDP growth / population growth• Defensive stocks – typically experience stable demand
and earnings growth despite external factors.• Unemployment • Inflation
18Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Supply
• Factors that could affect input costs:– Oil prices
• Recently high, possibly increasing
• Increases inputs – transportation, plastics, etc.
• Affects expected inflation
– Federal funds rate• Higher rates favor defensive companies
• Lower rates favor cyclical companies
• Expectation
– Degree of inflation• Increases cost of inventory, creates margin pressure
19Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Profitability and Pricing
• Increases in input costs combined with stable demand would decrease profit margins.
• Barriers to entry in sector:
– Dominated by large well-established companies – high capital requirements impossible for new companies
– Relative maturity of industry
– Competition primarily for overseas market share
• Minimal product substitution under ordinary economic conditions – power of branding.
20Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Inflation vs Valuation
• Inflation depress valuations: JPMorgan finds that for every 1% rise in inflation above 25-year trend, the trailing P/Es decline by 0.85x.
• JPMorgan sees that inflation has been fairly well contained considering high energy and commodity prices. However, if energy and commodity prices are sustained at the current elevated levels, they see upside risks to inflation.
Excerpt: JPMorgan Equity View (21 April 2006)
Inflation vs Trailing reported S&P500 P/E – Negative relationship
21Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
StockVal®S&P CONS. STAPLES SECTOR COMP ADJ (SP-30) Price 45.661996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
CPI-ENERGY YTY % CHANGE (SMOOTHED)-16
-8
0
8
16
24
32
HI 28.2 LO -14.9 ME 7.0 CU 20.6
04-30-199603-31-2006
PRICE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.5
0.6
0.7
0.8
0.9
1.1
1.3
HI 1.24 LO 0.59 ME 1.00 CU 0.94
04-26-199604-28-2006
EARNINGS RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.9
1.0
1.1
1.2
1.3
HI 1.30 LO 0.97 ME 1.06 CU 1.02 FY1 0.95 FY2 0.95
06-30-199603-31-2006
Fundamental Factors
CPI-Energy and Sector Valuation
22Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Fundamental Factors
• Interest rates significantly affect the earnings and values.
• Negative correlation.
StockVal®S&P CONS. STAPLES SECTOR COMP ADJ (SP-30) Price 45.021996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
US TREASURY NOTE 5 YR %2
3
4
5
7
HI 6.85 LO 2.08 ME 4.69 CU 4.90 GR -2.5%
04-19-199604-14-2006
PRICE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.5
0.6
0.7
0.8
0.9
1.1
1.3
HI 1.24 LO 0.59 ME 1.01 CU 0.92
04-19-199604-21-2006
EARNINGS RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.9
1.0
1.1
1.2
1.3
HI 1.29 LO 0.97 ME 1.06 CU 1.03 FY1 0.95 FY2 0.96
06-30-199612-31-2005
Interest Rates and Sector Valuation
23Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Fundamental Factors
• Personal consumption expenditure is also a good indicator of the sector’s relative earnings and valuation.
Consumer Expenditure and Sector ValuationStockVal®S&P CONS. STAPLES SECTOR COMP ADJ (SP-30) Price 45.66
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
PERSONAL CONSUMPTION EXP-REAL,SAAR ($BIL) YTY % CHANGE (SMOOTHED)1
2
3
4
5
6
HI 5.5 LO 1.9 ME 3.7 CU 3.3
04-30-199602-28-2006
PRICE RELATIVE TO S&P CONSUMER DIS. SECTOR COMP ADJ (SP-25) M-Wtd0.7
0.8
0.9
1.1
1.3
1.5
HI 1.47 LO 0.71 ME 1.12 CU 1.09
04-26-199604-28-2006
PRICE / YEAR-FORWARD EARNINGS RELATIVE TO S&P CONSUMER DIS. SECTOR COMP ADJ (SP-25) M-Wtd0.4
0.6
0.8
1.0
1.2
1.4
1.6
HI 1.55 LO 0.59 ME 1.02 CU 1.04
04-26-199604-28-2006
Valuation Analysis Valuation Analysis
25Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Investment Cycle
• We expect the current phase is on the verge of the peak of the market cycle.
• According to the Sector Rotation Model, Consumer Staples sector will benefit as a result of the current economic situation.
26Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Sector Valuation Comparison
• Consumer Staples’ P/E is higher than the sector value weighted P/E of 15.95x.
• P/B is also higher than the sector value weighted P/B of 3.25x
• Beta is lowest among the sectors.
27Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Sector Valuation Forecast
• Based on the Firstcall data, the earnings estimates of Consumer Staples are increasing.
28Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Fundamental Analysis
• P/B with ROE valuation (Earnings come from the estimate of 2006) shows that Consumer Staples sector is overvalued.
• However, considering the growth rate against the payout ratio, the premium on its value seems to be reasonable.
Sector Valuation
SP30
y = 13.297x + 0.5166
R2 = 0.4214
1.00
2.00
3.00
4.00
5.00
10.0% 14.0% 18.0% 22.0% 26.0% 30.0%
ROE
P/B
Growth vs Payout
SP30
R2 = 0.8251
4%
6%
8%
10%
12%
14%
16%
0% 10% 20% 30% 40% 50% 60%
Payout ratioG
row
th r
ate
29Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Technical Analysis
• Several technical analysis tools shows that Consumer Staples Sector has been on downward trend since this quarter.
• WM% shows that the sector is now in the oversold levels. We can expect the sector index will increase before long.
• MACD and RSI show that the sector doesn’t look good but these indicators also imply the upward movement potential.
Investment StrategyInvestment Strategy
31Consumer Staples SectorThe Ohio State University – Fisher College of Business – Fin824 Stock Market
Strategy
• Based on the current valuation, we don’t believe there is a need to increase our investment weight in consumers staples.
• As consumers consider the possibility of increasing inflation, they may reduce discretionary spending, boosting defensive stocks such as consumer staples.
• In addition, we foresee our current holdings to be able to perform relatively well in the coming quarters and the stocks that we currently have a loss in will start to lean more towards the profit side therefore, we do not want to decrease our weight either.