The Industrials Sector - Fisher College of Business - Industrials... · The Industrials Sector ... transportation, and distribution operations The sector has a vast exposure to ...

The Industrials Sector The Ohio State University SIM Program

Analysts

Name

Contact information

Nicole Heffle

[email protected]

Jingyuan Huang

[email protected]

Meng Jea Joo

[email protected]

Dun Hou

[email protected]

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


Net Profit Margin


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??

The Industrials Sector - Fisher College of Business - Industrials... · The Industrials Sector ... transportation, and distribution operations The sector has a vast exposure to ...

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