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Financials Stock Presentation
Mike Rainey Mitch Salsbery Mike Shaver Maddie Shirk
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Sector Review Current Market Cap: $7.60 T Second largest sector
S&P 500 1Y Return: 14.5% Financials 1Y Return: 12.37%
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Current Stock Standing American Express (AXP) Current Sector Standing
SIM Current Standing Current Stock Standing Stock SIM Weight Status Wells Fargo (WFC) 5.39% Citigroup (C) 3.63% American Express (AXP) 1.79% Metlife (MET) 3.36% Current Sector Standing SIM Weight 14.18% S&P Weight 13.84% SIM Target 12.84% % overweight on target on target on target on target
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Overview Market Data Market Cap $ B Shares 4.87 B 52 Week Range $ $66.31 EPS $4.03 Current Price $55.89 Revenue (2017) $93.81 B YTD Return -5.06% Founded as Wells, Fargo & Co. in 1852 in San Francisco, California Third largest bank in the U.S. by assets Operates in three business segments Community Banking Wholesale Banking Wealth Management Internal scandal that resulted in 3.5 MM fake accounts created without customer approval
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Macro Environment and Drivers
Increasing federal interest rates High economic strength and consumer confidence Sustained strength of the housing market Regulations and political influences Total asset cap at $2T
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Financial Analysis and Valuation
Wells Fargo Valuation Multiple Current Price Current Multiple Target Multiple Implied Stock Price P/E $55.89 13.87 16 $64.47 P/B 1.53 1.6 $58.45 P/S 3.21 3.7 $64.42 WFC Target Price: $62.45 Potential Upside: %
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Financial Analysis and Valuation
Terminal Discount Rate: % Terminal FCF Growth: 3.0% Current Price: $55.89 Implied Price: $69.28 Implied Upside: %
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Recommendation Pre-Cap Price DCF Price Multiple Price Current Price $66.31 $69.28 $62.45 $55.89 Predicted removal of asset cap sometime in next 6-12 months Growth and price will return to pre-cap conditions Preference to BUY, but… Constraints of SIM require holdings to be no greater than 5% So, SELL to 5% (reduce holding by 39 bps) Risks include delay of asset cap removal or additional scandal detail complications
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Overview Two Primary Business Segments Global Consumer Banking
Market Data Market Cap $ B Shares 2.55 B 52 Week Range $ $80.70 1 Year Return 2.51% YTD Return -9.96% Beta 1.52 EPS $(2.83) Financial Data (FY 2017) Revenue $ B Rev Growth (Y/Y) 2.30% Operating Income $ B Overview Two Primary Business Segments Global Consumer Banking Institutional Clients Group 4th largest US bank World’s largest issuer of credit cards Largest International vs comps 30% off shore
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Revenue Breakdowns: 28% institutional brokerage business 27% consumer finance 20% banking 15% institutional trust 10% wealth management
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One Year Growth
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Macro Environment and Drivers
Regulations and Geopolitical Issues Increasing Interest Rates Housing Market Interest income outpacing interest expense Technology Investment Aiming to increase ease of use for products Buyback program Aggressive program aimed at 10% within 1 yr
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Financial Analysis and Valuation
Absolute Valuation Current Multiple Target Multiple Target/Current (%) Target Price P/E 12.82 14 $73.17 P/B 0.94 1.2 $85.53 P/S 1.97 2.1 $71.42 P/EBITDA 7.9 8.5 $72.09
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DCF Term Discount Rate = 12% Term FCF Growth = 2%
Current Price = $67.00 Valuation: $79.06 Upside = 18.0%
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Financial Analysis and Valuation
Valuation Method Weight Price Target DCF 75% $79.08 $59.31 P/E 10% $73.17 $7.32 P/B 5% $85.53 $4.28 P/S $71.42 $3.57 P/EBITDA $78.01 $3.90 Final Price Target $78.38
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Recommendation SELL ALL due to comps High Risk versus peers Beta
Daily Risk International Concerns Upside of 14.5%
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Overview 5 primary business segments separated by region
Market Data Market Cap $44.17 B Shares Outstanding 1.107 B Beta 1.2 EPS (TTM) $4.01 52-Week Price Range $ $55.91 Current Price $43.76 YTD Return -13.45% Dividend Yield 3.87% Financial Data (FY2017) Revenue $62,308 M Net Income $3,907 M Revenue Growth YoY 2.5% Operating Margin 5.7% 5 primary business segments separated by region Provides Life insurance, annuities, Retirement and income solutions, and employee benefits programs Largest life insurer in terms of policies in force Lacks a competitive advantage but maintains large market share Growth comes primarily from acquisitions into foreign markets
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Macro Environment and Drivers
Increasing interest rates International growth prospects from acquisitions Simplification with spin off of Brighthouse Financial Share repurchases and increasing dividends Undervalued due to accounting errors
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Financial Analysis and Valuation
MetLife Comp Analysis Absolute Valuation Current Price Current Multiple Target Multiple Target Price P/E $43.76 12.44 15.51 $54.54 P/CF 4.07 8.13 $87.33 P/B .841 .824 $42.91 P/S .766 .900 $51.42 Comp Target Price $59.05 Potential Upside 34.9%
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Financial Analysis and Valuation
Discount Rate = 10% Terminal FCF growth = 1.50% Current Price = $43.76 Implied price = $52.55 Potential Upside = 20.1%
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Recommendation Recommendation: BUY 20.1% potential upside
Increasing dividend yield and share repurchases Risks related to internal accounting weaknesses
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Overview “American Express Company is a global services company that offers charge and credit services (primarily through issuance of charge or credit cards) that connect consumers and businesses, provides marketing data and insights to merchants, and operates loyalty/rewards programs to enhance customer satisfaction.” What does this mean? Earns revenues two main ways: Billed revenue: merchant fees and card fees Interest income Four main business segments: Global Consumer Services: US Consumer Services (USCS) and International Consumer & Network Services (ICNS) Global Commercial Services (GCS) Global Merchant Services (GMS) Competitive Advantages “Closed Loop” Network “Spend Centric” Model
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Macro Environment and Drivers
● Unemployment and consumer confidence ● Global markets ● Ability to leverage their network data
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Financial Analysis and Valuation
● Revenue and Earnings drivers ○ Current state: ■ Continued growth in global markets ■ Lower effective tax rate due to Tax Act ■ Leader in member spending per card ■ Data network – value to merchants and card members ○ Recent news: ■ Co-branding with Amazon for small businesses ■ Share buy back program and higher dividend payout ■ US Supreme Court ruling
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Financial Analysis and Valuation
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Financial Analysis and Valuation
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Financial Analysis and Valuation
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Recommendation Recommendation: SELL based on comps 16.6% upside
Growth potential outside of original DCF model Need to leverage competitive advantages
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Overview Four sectors: investment banking
institutional client services investing and lending investment management. 2018 Q2: 40% Increase in profit
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One Year Growth
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Macro Environment and Drivers
High EPS did not lead to price increase (stock down 1.7% since) 5.98 realized vs 4.88 expected Concerns of balance sheet quality - cut expenses Decreased market volatility helps drive consistency Trading segment missed targets - it’s largest driver Inflation may negatively impact investing
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Absolute Valuation Financial Analysis and Valuation
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Financial Analysis and Valuation
DCF: 11% Term Discount Rate 3% Term FCF Growth Current Price = $231.69 Implied Value = $279.33 Upside = 20.6%
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Recommendation Recommendation: BUY 20.6% upside per DCF
Risk related to exposure to capital markets Regulatory risks
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Overview Consumer financial services company
Largest provider of private label credit cards in the U.S. based on receivables and purchase volume Three business segments - Retail Card, Payment Solutions, and CareCredit Launched as a spin off from GE Capital during their IPO in 2014 Market Data Market Cap $ B Shares M 52 Week Range $ $40.59 EPS $2.63 Current Price $33.63 Revenue (2017) $7.071 B YTD Return -13.38%
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Macro Environment and Drivers
Strength of the retail market Receivables growth of 7% in 2017 Increasing interest rates Strong partnerships with large retailers 19 years+ average relationship Provide partners with customer data No transaction fees to retailers Tax benefit as a US based company
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Financial Analysis and Valuation
Synchrony Financial Valuation Multiple Current Price Current Multiple Target Multiple Implied Price P/E $33.63 12.81 19.12 $50.20 P/B 1.79 2.69 $50.54 P/S 3.53 5.3 $50.49 SYF Target Price: $ Potential Upside: %
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Financial Analysis and Valuation
Terminal Discount Rate: % Terminal FCF Growth: 3.0% Current Price: $33.63 Implied Price: $47.25 Implied Upside: %
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Recommendation Recommendation: BUY 40.5% Projected Upside
Risks related to quality of credit taken on
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Decisions Summary Stock Current Price Target Price Upside SIM Weight
Target Weight Decision $55.89 $69.28 24.0% 5.39% 5.00% SELL $67.00 $78.38 14.5% 3.63% 0% $43.76 $52.55 20.1% 3.36% 3.50% BUY $100.50 $117.14 16.6% 1.79% $231.69 $279.33 20.6% 2.30% $33.63 $47.25 40.5% 3.00% Thoughts: (after selling WF to max allotment, we can go anywhere from -95bp to +105bp in the sector) Sell: WF for sure (at least to 5%), Citigroup looks like a sell vs MetLife and GS Hold: Buy: I like MET only bc of current valuation due to accounting errors, other than that it’s a mature and low growth company, could hold this one depending on what everyone thinks about their stocks. GS looks like a decent buy as well.
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