1. Bingxin Chen Simin Chen Mason Dray Franklin DelGado
CONSUMER STAPLES
Bingxin Chen
Simin Chen
Mason Dray
Franklin DelGado

2. Consumer Staples Topics of Discussion I. Sector Overview Slide 3
II. Portfolio Updates
Slide 6
III. Kroger
Slide 8
IV. Walmart
Slide 14
V. Molson Coors/COTT
Slide 21
Consumer Staples
VI. P&G
Slide 31
VII. Recommendation
Slide 36
VIII. Appendices
Slide 38

3. I. SECTOR OVERVIEW

4. Percent of SIM Portfolio
SIM Portfolio Holdings
Percent of SIM Portfolio
3.22%
Sector Overview
3.84%
.87%

5. Underweight vs S&P 500 Sector Overview Our Sector Recommendation
S&P 500 Sector Weightings
SIM Portfolio Weightings
Sector Overview

6. II. PORTFOLIO UPDATES

7. Portfolio Updates Recommendations Kroger Buy $24.3
Company
Decision
Current Price
Target Price
Upside/
Downside
Current Weight
Target Weight
Kroger
Buy
$24.3
$30.17 (2 years target)
24.15%
3.22%
3.50%-4.00%
Walmart
$86.64
$109.18
26.0%
3.84%
P&G
N/A
$78.25
$87.31
-10.38% 0%
Cott
Sell
$14.56
$10.80
-25.8%
0.87%
Molson
Hold
$74.81
$77.42
3.5%
Portfolio Updates

8. III. KROGER

9. Kroger Business Analysis Kroger and comparables
Kroger and Consumer Staples
Kroger
Kroger and S&P 500
Key Drivers
Private label
Private Selection, the Banner brand, and vhvhvKroger Value
2. Customer Loyalty
Rewards program
Fuel Center
Attract potential customer
Kroger shows the lowest P/E most of the time among its competitors like walmart, P/G, target.
The P/E ratio also lower than the average of consumer staples sector and SP 500
I found two key drivers for maintaining this superior position for now and in the future, one is private label, Kroger has private selection, the banner brand and kroger value, they are targeting in different levels of customers which could help them have a more specific market strategy.
The other one is called customer loyalty, I shop at kroger probably 4 times a week and I really enjoy it’s discount for the rewards program membership.
Fuel center is used to attract customers to shop, therefore theri fuel center has a very low profit but it can help with increasing potential customer.

10. Kroger Comparable returns
5 years return on Kroger is 85%, which is higher than SP % and consumer staples 40%
Beta is 0.99, which is lower than the overall market
Kroger has the best performance compared to the competitors like Walmart and P&G
Kroger
We can see the fives years return on Kroger is 85% and it’s higher than SP 500 which is 80% and consumer staples which is 40%. While Kroger’s beta is 0.88 which is less than one.
This means Kroger is a company who has low volatility but with a relative high return comparing to the market. This fact indicates that kroger is a good company to invest.
When comparing to it’s competitors that shares the largest market share in it’s sector, kroger also has the best performance compared to walmart, target and p&g, my conclusion is that if you want to choose one one company as a defensive, kroger is the best choice.

11. Kroger Financial Analysis
Current ratio on P/E, EV/EBITDA P/B look very good compared to it’s 2 year historical data
ROE is around 28%, growth margin is around 22%.
Revenue has increased consistently YoY and so as the earning per share
Current PE is 15% lower than the 2 years highest average, EV/EBITDA and P/B is higher than the 2 year historical highest average.
ROE is around 28% and the growth margin is 22% with a stable and consistent growth.
Revenue has increased consistently year over year and so as the earning per share.
Next slides I will include my DCF model to show my projection for the Kroger in detail.

12. Valuation DCF
Kroger
Here is the valuation for kroger, which is basically my screenshot of hw4, current price for kroger is around 25 I believe and my estimate for the share price by using the dcf model would be in 10 year with a constant growth about 3.5% per year and 9% discount rate.
It will go up by 53% per equity value, the terminal p/e would also decrease from 23 to around 18.

13. Kroger Recommendation for Kroger Risks to Recommendation Hold to Buy
Increasing in debt: Kroger has a relatively high debt load compared to many of its competitors. Now, the company had roughly $9.6 billion of debt on its balance sheet. This represented roughly 62% of total capital.
Competition of Amazon’s Entry: With a potential entrance to the business by Amazon, Kroger's business is facing a big challenge both internally and externally. To its credit, Kroger has invested pretty heavily in its own organic and natural food and personal care brands.
Food Price Deflation: Recent results at Kroger have been hurt by falling prices for many mainstay grocery products, including eggs, milk, and meats. And since these products are primary ingredients in other baked goods, there is a multiplier effect.
My recommendation for Kroger is to buy with the financial and valuation analysis both shows the potential for stock price to increase the next year.
Another recommendation is to increase its weight in SIM portfolio to 3.5% - 4%, we can cut off COT and increase Kroger instead because we also want to decrease the weight for our portflio.
However, there are some facts to consider about, one is kroger is increasing its capital expenditure and debt. It has a relatively high debt load compared to many of its competitors
Also, Amazon has acquired whole food market which causes a potential challenge for them but Kroger respond with heavily investing on their organic food and personal care products.
Last one is the food price deflation, recent results shows that Kroger have been hurt by the falling prices for many grocery products, this may influences their operating in the future.

14. IV. WALMART

15. Walmart Business Segments
Company Overview
Walmart is the largest retailer in the world with around $500 billion in annual revenue and about 11,700 stores worldwide. The firm is also expanding into the e-commerce realm, but sales through this channel represent about 3% of its total. Groceries and consumables account for roughly half of sales, with the remainder from general merchandise, including fuel, hardlines, apparel, entertainment, and home goods
February 2018 Wal-Mart Stores Inc. changed its name to Walmart Inc.
Walmart Business Segments
Walmart
The Walmart U.S. segment includes the Company's mass merchant concept in the U.S. operating under the "Walmart" or "Walmart" brands, as well as retail websites such as walmart.com and jet.com.
The Walmart International segment consists of operations outside of the U.S. and includes retail, wholesale and other businesses.
The Sam’s Club segment consists of membership-only warehouse clubs as well as digital retail.
Each week, over 260 million customers and members visit our more than 11,600 stores under 59 banners in 28 countries and e-commerce websites in 11 countries.
Total revenue in Q3 was $123.2 billion, an increase of $5.0 billion (4.2%)
Net sales growth 50%; GMV growth 54%
GMV represents the total U.S. dollar volume of merchandise sold or services rendered for all transactions, including marketplace transactions, that are generally initiated through WMT’s eCommerce platforms or include our owned inventory sold on other third party platforms

16. Walmart 10-Year Performance Walmart Sales NYSW: WMT
Sector: Consumer Staples
Industry: Retail
10-year High: $106.60
10-year Low: $47.12
Current Price: $86.64
Walmart
Walmart Sales
Key Drivers
Walmart’s food and groceries selection, roughly 60% of sales, is a key differentiator that drives traffic to its stores.
With economies of scale and a vast distribution network, which contribute to the firm’s cost advantage

17. 1 Year Performance: WMT vs SPX & S5CONS
Walmart

18. WMT 1 Year Total Return vs. Competitors
Walmart

19. WMT VALUATION
Walmart

20. Risks To Recommendation
Walmart
Sector: Consumer Staples
Industry: Retail
Rating: BUY
Current Value: $86.64
Target Value: $109.18
Projected Return: 26%
52 Wk range:
Market Capitalization: 257.5B
P/E Ratio:
Dividend Yield: %
Walmart
Risks To Recommendation
Walmart could lose market share from hard discounters like Aldi and Lidl that are expanding in the United States.
On the e-commerce front, Walmart faces strong competition from Amazon. Walmart could lose market share should the company fail to adequately invest in its business and stay in front of retailing trends
Due to its global presence, the company is exposed to various risks, including foreign currency movements, sovereign policy risk, and geopolitical considerations.
McMillion’s logic behind Jet.com: “We’re looking for ways to lower prices, broaden our assortment, and offer the simplest, easiest shopping experience, because that’s what our customers want. We believe the acquisition of Jet accelerates our progress across these priorities. Walmart.com will grow faster, the seamless shopping experience we’re pursuing will happen quicker, and we’ll enable the Jet brand to be even more successful in a shorter period of time. Our customers will win. It’s another jolt of entrepreneurial spirit being injected into Wal-Mart.”
WMT bought an executive team, some technology, a growing customer base that Jet paid dearly to acquire, and vendor relationships that enhance Wal-Mart’s offering.
WMT could have done this all on their own for a fraction of the price. Jet.com’s shopping cart is innovative, but WMT could have built something similar, and as the world’s largest retailer, the company could have created any vendor relationships it wanted to have while also pushing prices down.
Jet.com is currently focused on higher income, urban customers. WMT launched uniquely J private brand and also began selling ModCloth items on Jet this quarter. WMT has started to attract more premium brands to the site and they expect that to continue.
Comp sales growth 2.7%, traffic increase of 1.5%, and eCommerce growth of 50%. Expect eCommerce growth of 40% next year.
50% ecommerce growth: began to lap the acquisition of Jet.com mid-quarter, which impacted overall growth.
Though…WMT.com, including online grocery, once again led the way and was responsible for the majority of the growth in the period.

21. Walmart Consensus Rating
McMillion’s logic behind Jet.com: “We’re looking for ways to lower prices, broaden our assortment, and offer the simplest, easiest shopping experience, because that’s what our customers want. We believe the acquisition of Jet accelerates our progress across these priorities. Walmart.com will grow faster, the seamless shopping experience we’re pursuing will happen quicker, and we’ll enable the Jet brand to be even more successful in a shorter period of time. Our customers will win. It’s another jolt of entrepreneurial spirit being injected into Wal-Mart.”
WMT bought an executive team, some technology, a growing customer base that Jet paid dearly to acquire, and vendor relationships that enhance Wal-Mart’s offering.
WMT could have done this all on their own for a fraction of the price. Jet.com’s shopping cart is innovative, but WMT could have built something similar, and as the world’s largest retailer, the company could have created any vendor relationships it wanted to have while also pushing prices down.
Jet.com is currently focused on higher income, urban customers. WMT launched uniquely J private brand and also began selling ModCloth items on Jet this quarter. WMT has started to attract more premium brands to the site and they expect that to continue.
Comp sales growth 2.7%, traffic increase of 1.5%, and eCommerce growth of 50%. Expect eCommerce growth of 40% next year.
50% ecommerce growth: began to lap the acquisition of Jet.com mid-quarter, which impacted overall growth.
Though…WMT.com, including online grocery, once again led the way and was responsible for the majority of the growth in the period.

22. V. Molson Coors/COTT

23. Top brands include Molson Canadian, Miller Lite, and Coors Lite.
Molson Coors Overview
Molson Coors is one of the largest beer makers in the world by volume, producing over 1.2 billion gallons a year.
Top brands include Molson Canadian, Miller Lite, and Coors Lite.
Molson Coors also is involved in the craft beer market with beers such as Blue Moon.
Molson Coors

24. Molson Coors Molson Coors News
New acquisition of MillerCoors, acquiring the remaining stake in the joint venture
Sales of beer suffering in the past year and projected to continue to fall in the next few years
Molson Coors
Molson Coors 1Y

25. Recommendation: Hold Molson Coors
Moslon Coors Recommendation
Recommendation: Hold
Hold Molson Coors, target price of $77.42, current price of $74.81, with only a 3.5% upside.
Prior Weight
Proposed Weight
Bps Change
0.00%
Molson Coors

26. Cott Overview
Cott Corporation produces and distributes a wide variety of beverages, including soft drinks, sports drinks, and bottled water.
In 2016 Cott acquired Eden Springs, S&D Coffee, and Aquaterra.
Down 11.34% YTD
Cott YTD
Cott

27. Cott
Cott Corporation historically had a wider spread from the S&P, recently has become tighter
Cott Spread vs SPX
Cott

28. Cott
Cott Corporation’s operating margin has been decreasing over time, pointing to decreased efficiency within the company
Cott Operating Margin
Cott

29. Cott
Cott Corporation’s ROE has been steadily decreasing, even going negative in This points to the company not generating enough profits with what has been invested.
Cott Return on Equity
Cott

30. Cott Positive Risks Low risk asset with less than average volatility
Wide reach across different countries
#1 private-label market share in Canada, Mexica, the UK and the US.
Product competition/diversity
Sustainability
Cott has spread into multiple different areas of the beverage industry, potentially overstretching themselves
Return on Equity has been falling for past five years
With current position in business cycle historically it will not perform well
Industry dominated by Pepsi and Coca-Cola, tough to switch consumer tastes
Cott
Key Drivers

31. Cott Recommendation
Recommendation: SELL
Cott has a target price of $10.80, which is a -25.8% downside to its current price of $14.56
Prior Weight
Proposed Weight
Bps Change
.87% 0%
-87
Cott

32. VI. P&G

33. P&G Overview
P&G is an American multinational consumer goods corporation
In the Household Products sub-sector of consumer staples
P&G operated in 10 business segments
P&G
P&G is an American multinational consumer goods corporation under the household products sub-sector of consumer staples. So far, the company operated in 10 business segments.

34. P&G P&G PERFORMANCE Negative YTD Return
Total return is -13.4% over past year vs -11.9% for S&P 500 Household Products Sub Industry GICS Level 4 Index and 13.6% for S&P 500 Index
Currently, our portfolio doesn’t hold the P&G’s stock, which is a good news because during the past several months, P&G is one of the worst performer. Its current price is $75.91, almost near the 52 week lowest price and its YTD is negative. Compared to S&P index and the Consumer Staple sector, the company is underperformed.

35. P&G A significant drop in its revenue
P&G FINANCIAL ANALYSIS
A significant drop in its revenue
Relatively stable operating income and net income
P&G
A look at its financial data, we could see that there was a significant drop in the company’s revenue, however, its operating income and net income was relatively stable.

36. P&G Low Relative Valuation V.S. History
P&G V.S PEERS; P&G V.S History
Low Relative Valuation V.S. History
Underperformed compared to its peers
P&G
Then we can go through its history data as well as compare its performance with its peers.
The table above compares the current and the hist average ratio, we could see that, P&G currently has lower relative valuation.
The average p/e ratio is 33.33, while that of PG is only 19. Similarly, the company’s p/B as well as p/cf also under the average
Based on the performance of P&G, there are too many uncertainties existing and the company so far doesn’t indicate any turnaround signals.
My recommendation is hold the same weight in our portfolio, which is zero.

37. VI. RECOMMENDATIONS

38. Portfolio Updates Recommendations Kroger Buy $24.3 $30.17 24.15% 3.31%
Company
Decision
Current Price
Target Price
Upside/
Downside
Current Weight
Target Weight
Kroger
Buy
$24.3
$30.17
24.15%
3.31%
3.50%-4.00%
Walmart
$86.64
$109.18
26.0%
3.84%
P&G
N/A
$78.25
$87.31
-10.38% 0%
Cott
Sell
$14.56
$10.80
-25.8%
.87%
Molson
Hold
$74.81
$77.42
3.5%
Portfolio Updates
Again, here is our group’s recommendations:
we see lots uncertainties in the market and investing the consumer staples is a good tool to defense the risky economic environment
Buy the kroger and walmart while selling some of the cott stocks

39. VII. Appendices

40. P&G DCF
P&G

41. Kroger DCF
P&G

42. WMT DCF
Wal-Mart

43. Cott DCF
COTT