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Industrials Stock Recommendation

Industrials Stock Recommendation. Bernard Hosanna Shawana Jackson Brett Kinkopf Jonathan Kocon Chien-Ying Lee. Agenda. Recap of Sector Industrial Holdings Stock Recommendations Summary Q&A. Sector Recap. SIM Industrials Weight: 12.76% S&P500 Industrials Weight : 10.28%

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Industrials Stock Recommendation

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  1. Industrials Stock Recommendation Bernard Hosanna Shawana Jackson Brett Kinkopf Jonathan Kocon Chien-Ying Lee

  2. Agenda • Recap of Sector • Industrial Holdings • Stock Recommendations • Summary • Q&A

  3. Sector Recap • SIM Industrials Weight: 12.76% S&P500 Industrials Weight : 10.28% Overweight by 248bps • Class agreed to increase 15bps to overweight the sector by 200bps • Positive sector developments • Improving global growth • Unemployment rate improving • Rising GDP data • Favorable industrial spending

  4. Industrial Holdings Current Holdings Emerson =1.23% General Dynamics =3.57% Oshkosh =4.01% UTI Worldwide =2.38% First Solar =1.57% Total =12.76% • Proposed Holdings • Emerson =1.23% • General Dynamics =3.00% • Oshkosh =3.50% • UTI Worldwide =2.38% • Bucyrus =2.17% • Total =12.28% Sell 57 bps of General Dynamics Sell 51 bps of Oshkosh Sell 157 bps of First Solar Buy 217 bps of Bucyrus

  5. First Solar (FSLR) Overview • Produces Cadmium Telluride Solar Panels and provides solar energy solution services • Is attempting to attain “grid parity” or a ~$0.70/watt price of electricity • Have claimed they hit $1/watt… Much lower than the $4/watt for most solar units • Considered a growth stock • Has paid no dividends and has seen massive capital gains since its IPO

  6. FSLR in Relation to XLI

  7. FSLR Valuation

  8. FSLR DCF and Target Price • Terminal DCR of 12% • Terminal FCF growth of 4.5% • Target price of $148.74 • Current price of $108.62 • Upside of 36.9%!!! • So why sell?

  9. Everything Looks OK- So Why Sell? • A considerable portion of FSLR’s revenue is based on purchases backed by international governmental subsidies • Recently the German government announced that it would decrease its subsidies for photovoltaic panels • On February 18th, FSLR management announced it would widen its EPS guidance to $6.05 - $6.85 • So the DCF may still look good, but these forecasts are much less certain now • In other words- overnight the volatility of this stock increased greatly. • This company is beholden to the whims of foreign governments

  10. Bucyrus International • Products: • Draglines • Drills • Shovels & excavators • Mining trucks • Demand Drivers: • Coal • Copper • Oil sands • Iron ore • Other minerals • Designs, manufactures, and markets mining equipment • Supplies aftermarket parts and services for mining equipment

  11. Bucyrus International • Risks • Commodities market • Mining activity • Global economy • Foreign currency

  12. GDP & Bucyrus

  13. Crude oil spot price & Bucyrus

  14. International Growth • Largest surface markets: • Australia • Canada • China • India • South Africa • South America • US • Expected growth in Russian and Indonesian markets • Largest underground markets: • Australia • Germany • China • US • Germany expected to decline as a market • Expected growth in Russian, Indian, and Eastern European markets 70% of sales outside of U.S.

  15. Bucyrus’s Financials

  16. Bucyrus’s Financials

  17. Bucyrus’s Key Financial Stats • Low current to D/E ratio at 0.37 compared to industry at 2.63 • Low PEG ratio at 1.24 compared to industry at 2.02 • 5-year Historical EPS Growth Rate 86.5% • Low P/E ratio at 15.33 compared to industry at 27.16

  18. BUCY’s Valuations

  19. BUCY’s Valuations Average Price Target = $90.63 = 38% upside

  20. Joy Global’s Valuation Average Price Target = $62.52 = 11% upside

  21. DCF model & Target Price =(50% ave multiples + 50% DCF) =(0.5*$90.63 + 0.5*$81.50) =$86 (30% upside) Current Share Price : $65.82 Implied equity value/share : $81.5 Upside/(Downside) to DCF : 23.8% Terminal Discount Rate:10.5% Terminal FCF Growth: 5.0%

  22. What the charts suggests

  23. Industry Charts

  24. BUCY vs JOYG Charts over 5 yrs

  25. Summary • First Solar • Uncertain outlook • Highly volatile • Germans reduces subsidies • Bucyrus • Rising global growth driven by emerging markets • Improving Asian urbanization should drive commodity prices higher • Technical charts bullish • Proposed Holdings • Emerson =1.23% • General Dynamics =3.00% • Oshkosh =3.50% • UTI Worldwide =2.38% • Bucyrus =2.17% • Total =12.28% Sell 57 bps of General Dynamics Sell 51 bps of Oshkosh Sell 157 bps of First Solar Buy 217 bps of Bucyrus

  26. BUCY Sensitivity Analysis

  27. Emerson Electric • Emerson is a global diversified technology company • The company engages in designing and supplying product technology, as well as delivering engineering services and solutions to various industrial, commercial, and consumer markets worldwide Current Share Price : $48.49 Implied equity value/share : $54.56 Upside/(Downside) to DCF : 12.5% Terminal Discount Rate:10.5% Terminal FCF Growth: 5.0%

  28. Oshkosh Industry: Trucks and Other Vehicles Market Cap: $3.3 B Target Price: $44 Current Price: $37.25 Upside Potential: 18%

  29. Uti Worldwide DCF: • Current Price: $15 • Implied/Equity Value: $17 • Upside/(Downside): 10.3% Discount rate: 10% Terminal growth rate: 3.5% Multiples Target Price: $20 Average Target Price: $18.50

  30. General Dynamics Multiple Valuation Recommendations Target Price: 0.5* Ave of multiple valuation price + 0.5* DCF Price Range: $77.51-- $86.26 HOLD

  31. General Dynamics--DCF

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