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Consumer Discretionary (S5cond) sector outlook

An overview of the Consumer Discretionary sector, including performance, influencing factors, financial analysis, valuation, and recommendations.

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Consumer Discretionary (S5cond) sector outlook

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  1. Consumer Discretionary (S5cond) sector 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. S&P500 vs Sim portfolio

  5. Consumer Discretionary Industry Group, Industry, and Sub- Industry

  6. Sector Overview 84 Companies in the Sector

  7. Best Performing vs. worst performing stocks in the Consumer Discretionarily Sector

  8. 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

  9. Agenda

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

  11. Porter’s 5-forces analysis

  12. Porter’s 5-forces analysis

  13. Agenda

  14. Consumer Discretionary Economic analysis INFLUENCING FACTORS

  15. Consumer confidence & Consumer Discretionary The relationship is positively correlated. Consumers are optimistic about the US economy in the near future which encourages spending.

  16. US Dollar value & Consumer Discretionary The relationship is Negatively correlated. Depreciation on the US Dollars would increase US Exports. US Consumers purchasing power internationally might be affected.

  17. US Exports & Consumer Discretionary Generally the Relationship is positively correlated. No strong relationship exist though.

  18. US GDP & Consumer Discretionary There is a positive correlation with the economic status (Expansion or contraction ) and the sector performance.

  19. Oil price & Consumer Discretionary There is a negative correlation between Oil price and the sector. Lower oil prices help boosting the index upward

  20. Unemployment rate & Consumer Discretionary A negative correlation. Consumer spending increases as result of low unemployment rate which positively impact the sector.

  21. CPI & Consumer Discretionary A positive correlation with the CPI. Normal inflation rate indicates the health of the economy and consumer spending

  22. Fed Interest rate & Consumer Discretionary The Sector benefits from the low interest rate. The planned interest increases might impact the sector negatively due its impact on consumer spending and corporation cost of debt.

  23. Agenda

  24. FINANCIAL ANALYSIS S5COND- Sales S5COND- Earnings • 2017 sales and earnings growth rates of the sector are 3.7% and 2.2% respectively, the lowest in the last 8 years. • However, as the economy has been doing very well recently and will likely to continue in the next years, especially with all the fiscal stimuli, consumer discretionary sector are expected to recover and grow strongly.

  25. FINANCIAL ANALYSIS S5COND- Sales S5COND- Earnings • Top companies: Amazon vs. McDonald

  26. FINANCIAL ANALYSIS S5COND- Sales S5COND- Earnings • The sector’s gross margin in 2017 is 35.0%, a slight increase from the popular level of 33% of the last 7 years. Likewise, EBITDA margin went up to 16.1%, compared to around 15% every year since 2011; Operating margin: 11.1%; Profit margin: 7.9%

  27. FINANCIAL ANALYSIS S5COND- Sales S5COND- Earnings • The sector has roughly the same gross margin as the S&P 500 • The sector has slightly lower profit margin as the S&P 500

  28. FINANCIAL ANALYSIS S5COND- Sales S5COND- Earnings • This sector generates positive net cash flows (CFO + CFI + CFF), positive free cash flow

  29. Agenda

  30. Valuation analysis – S&p 500 vs. s5cond

  31. Valuation analysis – Level 2 indices

  32. Agenda

  33. Recommendation Relative to the S&P500

  34. Thank you

  35. The 84 companies in the Consumer Discriminatory sector

  36. Companies in the Consumer Discretionarily Sector

  37. Companies in the Consumer Discretionarily Sector

  38. Companies in the Consumer Discretionarily Sector

  39. Companies in the Consumer Discretionarily Sector

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