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Industrials Stock Presentation

Industrials Stock Presentation. Eric Hatch Christina Haubrock Melissa Hickey. November 24, 2009. Agenda. Industrials Sector Recap Recommendation GE - Sell GD - Buy. Industrials Sector Recap. SIM Portfolio - Industrials. *prices as of Friday 11/20/2009 close. SIM Portfolio.

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Industrials Stock Presentation

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  1. Industrials Stock Presentation Eric Hatch Christina Haubrock Melissa Hickey November 24, 2009

  2. Agenda • Industrials Sector Recap • Recommendation • GE - Sell • GD - Buy

  3. Industrials Sector Recap

  4. SIM Portfolio - Industrials *prices as of Friday 11/20/2009 close

  5. SIM Portfolio Currently overweight by 188 BP

  6. Industrials Sector Recommendation INDUSTRIALS SECTOR SHOULD MAINTAIN THE CURRENT LEVEL OF 188 BASIS POINTS OVERWEIGHT • Positives: FINANCIAL • Sector ratios indicate that the sector is undervalued ECONOMIC • Improving global economic recovery • Increasingly global in scope • Favorable impact anticipated from the infrastructure spending • Risks: • Slower economic recovery than anticipated • Lag time associated with the Industrials Sector

  7. 3 out of 4 moms across the country agreed with our Recommendation.

  8. Stock Recommendation SELL 243 BPS GENERAL ELECTRIC (GE) Current Price*: $15.76 Target Price: $16.85 Upside: +5.7% SELL 100 BPS OSHKOSH CORP (OSK) Current Price*: $37.97 Target Price: $43.57 Upside: +14.7% BUY 343 BPS GENERAL DYNAMICS (GD) Current Price*: $66.40 Target Price: $102.07 Upside: +54.64% *prices as of Friday 11/20/2009 close

  9. General Electric Stock Analysis

  10. Business Analysis • Compare/contrast companies in discussion • Regression analysis

  11. Business Analysis • Review projects for earnings and sales, compare/contrast • Review breakdown of ROE, compare/contrast • Review history of companies, compare/contrast

  12. Business Analysis • Operating in 5 broad business segments • Energy, Technology, Media, Capital Finance, Consumer & Industrial Goods • $182.5B in revenue (as of FY08) • $129.3B from US & Europe (71% of total sales) • Pending sale of NBC Universal • GE Capital • Which regulatory authorities oversee this segment • $340B Temporary Liquidity Guarantee Program • 25% of program used to cover debt issued by GE Capital

  13. Financial Analysis Current Price$15.76 Implied equity value/share$16.24 Upside to DCF 3.0%

  14. General ElectricDCF Sensitivity Sensitivity Results Range: $13.96 - $19.84

  15. General ElectricMultiples Valuation • Final Average Target Price for GE: • 90% DCF weight and 10% Multiples = $16.85 (+5.7%)

  16. General DynamicS Stock Analysis

  17. General DynamicCompany Profile • General Dynamics serves the U.S. government and commercial; and international defense and commercial customers in North America, Europe, the Middle East, South America, Africa, and the Asia/Pacific. • Focus on high quality and cost conscious • General Dynamics was founded in 1899 and is based in Falls Church, Virginia. STOCK INFORMATION Sector (S&P): Industrials Industry (S&P): Aerospace Defense Market Cap: 25.64B Shares Outstanding: 385.8M Avg Daily Volume: 2.3M YTD Return: 11.23% 52 Week Range: $35.28 -$68.84 Dividend Yield: $1.52 Beta: 1.26

  18. Business Analysis • Aerospace • Designs, manufactures and provides services for mid-size, large cabin and ultra-long range business aircraft. • Combat Systems • Supplies land and amphibious combat machines and systems, including armored vehicles, power trains, turrets, munitions and gun systems. • Marine Systems • Designs and builds submarines, surface combatants, auxiliary ships and large commercial vessels. • Information Systems and Technology • Expertise lies in specialized data acquisition and processing, in advanced electronics, and in battlespace information networks and management systems.

  19. Business Analysis • Strengths • Diversity of business • Diversity of customers • Successful Acquisitions • Top line growth • Weakness • Jet demand in weak economy

  20. Business Analysis Government Outlays for Defense Procurement Correlation: .74

  21. Financial Analysis • Growth - Proven • GD has shown sizeable growth trend and will continue to grow with acquisitions

  22. Financial Analysis • Operating margins range from 8.3%-12.6%over the last 10 years. A push to focus on supply chain will ensure sustainability of a 12% margin. • Profitability - Strong

  23. Financial Analysis • Financial Health - Strong • Ratios indicate financial strength, liquidity. It is important to note GD is currently carrying a $1.6M cash cushion and a debt/equity of .31

  24. General DynamicsDCF Valuation Current Price$66.47 Implied equity value/share$101.45 Upside to DCF 52.6%

  25. General DynamicsDCF Sensitivity Discount Rate Sensitivity Results: $68.87 – $120.24 Growth Rate Sensitivity Results: $87.34 - $152.87

  26. General DynamicsMultiples Valuation Average Target Price for Multiples Valuation: $106.06 • Final Average Target Price for GD: • 75% DCF weight and 25% Multiples = $102.17 (+53.71%)

  27. GD Reccomendation BUY 343 BASIS POINTS OF GD • Positives: FINANCIAL • Ratios indicate that the stock is undervalued • Proof of success via acquisitions ECONOMIC • Improving global economic recovery • Relationship with Defense Department • Risks: • Aerospace may never rise to pre-economic meltdown levels • Unpredictable defense spending GENERAL DYNAMICS (GD) Current Price*: $66.47 Target Price: $102.17 Upside: +53.71% Recommendation: BUY *price as of Friday 11/20/2009 close

  28. Stock Recommendation SELL 243 BPS GENERAL ELECTRIC (GE) Current Price*: $15.76 Target Price: $16.85 Upside: +5.7% SELL 100 BPS OSHKOSH CORP (OSK) Current Price*: $37.97 Target Price: $43.57 Upside: +14.7% BUY 343 BPS GENERAL DYNAMICS (GD) Current Price*: $66.40 Target Price: $102.07 Upside: +54.64% *prices as of Friday 11/20/2009 close

  29. Industrials Rock!! • Homer’s reaction to GE’s upside. Doh!! • Homer’s reaction to General Dynamic’s upside. Wow!!

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