the industrials sector - fisher college of business - industrials... · the industrials sector ......
TRANSCRIPT
The Industrials Sector The Ohio State University SIM Program
Analysts
Name
Contact information
Nicole Heffle
Jingyuan Huang
Meng Jea Joo
Dun Hou
Agenda
Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Recommendations
Overview of the Sector
SIM Fund at Ohio State
Overview
Industrials
Companies that provide industrial and
commercial equipment and services,
transportation, and distribution
operations
The sector has a vast exposure to emerging markets
Cyclical Sector
Sector Size – Market Cap = $1.428
Trillion
As a percent of the S&P:
Industries Within the Sector
Aerospace & Defense
Machinery
Industrial Conglomerates
Air Freight & Logistics
Road & Rail
Commercial Services &
Supplies
Electrical Equipment
Trading Companies &
Distributors
Construction &
Engineering
Thrifts & Mortgage
Finance
Household Durables
Airlines
Building Products
Largest Companies in Industrials
Recent Sector Performance
Last Year
Earnings Per Share
Up 8%
Revenues (% Change)
5%
Last Quarter
Earnings Per Share
Up 5.78%
Revenues (% Change)
5.65%
Business Analysis
Key Performance Drivers
Gross Domestic Product (GDP)
Government Spending
Infrastructure and Military, primarily
Commodity Prices
Oil and metals
Manufacturing Capacity Utilization
Capital Spending
Phase of the Life Cycle
Currently in the
Maturity Phase
“Mid-to-late” part of
the cycle
Growth – still occurring
through Technology
and M&A
Selling in large
volumes = maximizing
profits
External Factors
Raw Material / Natural Resource Costs
Government Regulation & Laws
Government / Capital Spending
Environmental Issue
Rising Competition from Emerging Markets
Industry
Force Factors Analysis
Barriers to Entry • Requiring Significant Startup Capital
• Requiring High Technology
• Patents
• Economic of Scale
• Distribution/Dealers network
High
Buyer Power • Product Differentiation is big
• Switching Cost is low
• No substitutes for industrial equipment
Moderate
Supplier Power • Supplier is relatively less important to the industry
• Raw materials are common
• Large purchasing power from manufacturing
companies
Low
Substitutes • Products can be replaced by other brands
• Specialized equipment is fewer. Like engine.
• Unspecialized products are more. Like raw materials
• Stability in market growth
Moderate
Rivalry Intensity • Public tender bidding
• Powerful Player s
• Price and quality competition
High
Porter’s Five Forces
Economic Analysis
Highly Correlated Index
S&P 500 Price Index
Real GDP
Labor Market
New Manufacturing Orders
PPI on Gasoline
S&P 500 Price Index
Real GDP
Labor Market
New Manufacturing Orders
Relatively lower correlative index
But, it’s worth to take a look.
Oil Price
New Housing Starts
PPI – Aluminum
PPI - Steel
Oil Price
New Housing Starts
PPI-Aluminum
PPI-Steel
Financial Analysis
Industrials Select Sector
SPDR (XLI) vs. S&P 500
Industrials Sector Performance
Industry Performance
Sales Growth Rates of the
Major Companies
Ticker Company Sales Growth (%)
MRQ TTM 5-yr
GE General Electric 3.57 0.05 -3.10
UTX United Technologies Corp 14.37 3.50 0.71
UNP Union Pacific Corp 2.78 7.00 5.15
MMM 3M Co 4.20 0.99 4.10
CAT Caterpillar Inc -6.77 9.54 7.94
UPS United Parcel Service Inc 2.86 1.92 1.72
HON Honeywell International Inc 1.14 3.11 1.72
BA Boeing Co 14.05 18.86 4.24
EMR Emerson Electric Co 4.60 2.75 1.98
DHR Hanaher Corp 5.48 13.49 10.62
Sector 5.65 7.00 5.87
Industrials Sector Revenue
Industrials Sector Revenue
Industrials Sector Earnings
Industrials Sector Earnings
Industrials vs. S&P500
EBITDA Margin
Industrials vs. S&P500
Net Profit Margin
Industrials vs. S&P500
ROE Margin
Sales & Cash Flow Per Share
Valuation Analysis
Sector Valuation
Absolute Basis High Low Median Current
P/Trailing E 24 7.1 17.6 15.3
P/Forward E 20.9 9.2 16.2 14.7
P/B 3.6 1.4 3.0 2.9
P/S 1.6 0.6 1.3 1.3
P/CF 14 6 10.6 10.5
Relative to SP500 High Low Median Current
P/Trailing E 1.2 0.66 1.1 1.0
P/Forward E 1.2 0.84 1.0 1.0
P/B 1.3 0.9 1.1 1.3
P/S 1.1 0.8 1.0 0.9
P/CF 1.2 0.8 1.1 1.1
Sector Valuation (cont’d)
Trend
Industry Valuation
Absolute Basis High Low Median Current
P/Trailing E 31 5.2 14.7 11.3
P/Forward E 36.1 6.7 13.1 12.6
P/B 6.3 1.5 4.0 3.7
P/S 1.7 0.3 1.0 1.0
P/CF 14.5 4.8 8.8 8.3
Relative to SP500 High Low Median Current
P/Trailing E 1.8 0.48 0.92 0.76
P/Forward E 2.2 0.56 0.91 0.88
P/B 2.6 1.0 1.4 1.6
P/S 1.3 0.5 0.7 0.7
P/CF 1.5 0.6 0.9 0.8
Valuations Variation Across
Industries Industry Aerospace/Defense Machinery Industrial Machinery Cons/Farm Electrical Component Conglomerates
Absolute Median Current Median Current Median Current Median Current Median Current
P/Trail E 16.4 13.6 27.6 7.6 15.9 13.2 20.4 17.3 17.3 14.9
P/Forw E 16.1 13.6 16 13.1 14.1 10.9 18.1 15.6 16.4 13.6
P/B 3.1 3.6 2.8 2.3 4.0 4.3 3.8 3.6 3.1 2.0
P/S 1.0 1.0 1.4 1.3 0.9 1.1 1.7 1.8 1.9 1.5
P/CF 11.4 10.1 11.4 10.8 9.0 9.0 13.4 13.2 11.6 9.6
Valuations Variation Across
Industries (cont’d) Industry Aerospace/Defense Machinery Industrial Machinery Cons/Farm Electrical Component Conglomerates
Relat SP Median Current Median Current Median Current Median Current Median Current
P/Trail E 1.0 0.99 1.1 1.1 1.0 0.97 1.2 1.3 1 1.1
P/Forw E 0.99 0,99 1.0 0.96 0.94 0.79 1.1 1.1 1.0 0.99
P/B 1.2 1.6 1.0 1.0 1.4 1.9 1.5 1.6 1.1 0.9
P/S 0.7 0.8 1.0 1.0 0.6 0.9 1.2 1.4 1.3 1.2
P/CF 1.1 1.1 1.1 1.2 0.9 1.0 1.3 1.4 1.1 1.0
Recommendations
SIM Portfolio
Recommendation
SIM Portfolio
Current Industrials Sector Weight
S&P 500: 10.19%
SIM Weight: 10.25%
Recommendation:
Overweight 60 BPS
Suggested Weight: 10.85 %
Total = 44.25 %
Industrials Sector Portion = 10.85 %
Select Sector Annualized
SPDR Fund Three Five Ten
Year Year Year
Materials (XLB) 9.72% 1.32% 10.24%
Health Care (XLV) 13.65% 7.92% 7.08%
Cons Stap (XLP) 15.40% 9.93% 9.96%
Cons Disc (XLY) 20.28% 12.01% 9.98%
Energy (XLE) 13.47% 2.20% 15.07%
Financials (XLF) 7.77% -5.35% 0.44%
Industrials (XLI) 14.80% 4.80% 10.00%
Technology (XLK) 12.69% 7.51% 8.76%
Utilities (XLU) 13.23% 3.91% 11.74%
U.S. Macro Indicators
Major Positives
Continuous Strength in Consumer Spending
Rebound in Housing
Expanding Commercial Construction
Improved Manufacturing Purchasing Managers Index
(PMI)
Major Risks
Threats from Emerging Markets (i.e. China)
Natural Resource/Raw Material Price Fluctuation
Any Questions??