Bender Trust Research Project

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Bender TrustResearch Project

• Overview
• Greg Francfort

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The Bender Trust

• Started by alumni David Bender
• 120,000 principal
• Currently worth 1,600,000
• Used for scholarships

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Greg Francfort

• Rutgers undergraduate in engineering
• Wharton MBA graduate
• First Boston Corp.
• Sell-side analyst, Assoc. Research Director
• Neuberger Berman
• Portfolio Manager, Research Director
• Securities Analysis at Columbia University

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Part I Fundamentals
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Summary

• There is no such thing as present tense in
  performance management.
• 1980-2005
• SP 500 12.5
• Average mutual fund 10
• Mutual fund investor 7.3

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Hewlett Packard (HPQ) 40.78

• 52 week range 37.32-54.75
• SP 5001165
• 2009 2010 2011
• EPS 3.85 4.51 5.12
• P/E 10.7 9.1 8.0
• SP EPS 83 90
• SP P/E 14.0 12.9
• Relative P/E 65 62

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Company Description

• One paragraph
• What does the company do to make money?
• What products / services do they sell?
• What are the costs of production?

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Competitive Analysis

• One page Porters Five Forces
• Identify customers / suppliers
• What are the competitive advantages /
  disadvantages? Size, market share?
• Is the business getting more or less competitive?
• Is there a moat around the company?
• Be succinct!

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Part II Analysis
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Earnings Outlook

• What are the prospects the company can grow its
  business?
• Growth from price or volume increases?
• What is the danger of cost increases?
• Likelihood of positive or negative earnings
  surprise compared to consensus estimate of EPS
  for 2010?

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Earnings Outlook

• Build a Model?
• Revenue minus expenses profits
• Profits / shares outstanding EPS

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Forecast Revenue

• Use 2009 as a base to forecast 2010 revenue
• Project 2010 growth for the industry
• What factors will drive growth?
• Try to use units or volume
• How might your companys market share change?
• Product or service price in 2010 vs. 2009?

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Case Study BUD
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U.S. Beer Industry Unit Demand

• Population
• Beer consumer specific population
• Weather
• Income
• Gasoline prices, employment rate
• Consumer taste
• Health issues
• Mad cow for beer?
• Low carb/healthier diets

• Social trends
• Price of beer
• Price of substitutes
• Advertising by suppliers of beer
• Advertising by suppliers of substitutes
• Legal issues
• Stricter penalties for DWI
• Changes in legal drinking age
• New Products or Market segments

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Expenses

• COGS
• Variable costs raw materials to make and deliver
  beer?
• Fixed costs depreciation
• S,GA
• ???
• Interest expense
• Income taxes

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Valuing the Earnings

• Calculate P/E on consensus 2010 EPS forecast
• Relative P/E to
• SP500 at 827 SP500 EPS 2009 est 50
• SP500 P/E on 2009 16.5x
• Does our Company deserve a premium or a discount?
• Depends on growth and on risk

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Other Valuation Tools

• DCF
• P/Book Value per Share
• P/Asset value
• EV/EBITDA

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Recommendation

• Convincing case of earnings surprise (positive or
  negative)
• Persuasively assert the stock deserves a larger /
  smaller relative P/E multiple on 2009 EPS than
  present level
• Possible takeover potential or some other
  corporate event that unlocks or reduces value

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Summary

• Maximum three pages
• Five minute presentation
• Only the important information
• More effort more knowledge

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Resources

• Yahoo! Finance
• EDGAR
• 10-K, 10-Q, etc.
• Company websites
• Customers, employees, competitors, suppliers
• Creative intellect!

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Stock List
Marlin Business Svcs. Corp. MRLN Smurfit-Stone Container Corp. SSCC
Oracle Corp. ORCL WABCO Holdings Inc. WBC
Nokia Corp. NOK Taiwan Semiconductor Manu. Co. TSM
Wal-Mart Stores Inc. WMT USG Corp. USG
Lowe's Companies Inc. LOW Viacom, Inc. VIA-B
The Home Depot, Inc HD Valero Energy Corp. VLO
Comcast Corp. CMCSA Boeing Co. BA
CarMax Inc. KMX Walgreen Co. WAG
Occidental Petroleum Corp. OXY Apple AAPL
Packaging Corp. of America PKG Cedar Fair LP FUN
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Deadlines

• Part I
• December 3, 2010
• Part II
• TBA

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Questions?

• gfrancfort_at_nb.com
• rulibor_at_gmail.com