1. Industrials-Stock Recommendations
Student Investment Management: Summer 2017
Team members: Seth Frey & Sam Goldberg

2. Overview Companies Recommendation 2 Stock Recommendation Agenda
Industrials: Seth Frey and Sam Goldberg
Stock Recommendation Agenda
Overview
Companies
Recommendation
Sannad, can you copy in your data analysis? 2

3. Industrials: Seth Frey and Sam Goldberg
Sector - Overview 3

4. Sector - Overview
Industrials: Seth Frey and Sam Goldberg 4

5. Sector – Financial Analysis

6. The major positives affecting the Industrial sector are:
Industrials: Seth Frey and Sam Goldberg
Sector Recommendation
The major positives affecting the Industrial sector are:
Increase in 2015 to 2016 sales growth, predicted to continue
Slightly under valued compared to S&P 500
Net producer of cash flow
Input prices generally constant to decreasing
The biggest risks are:
Decreasing cash flows
Increasing p/s, p/e
High expectations
Estimated gross margin of S&P 500 predicted to increase 10%
Recommendation
Overweight or inline relative to S&P 500
Industries to overweight: defense, healthcare
Industries to underweight: industrial/factory automation equipment
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 6

7. Current SIM Positions SIM Holdings Top 10 Holdings
Industrials: Seth Frey and Sam Goldberg
SIM Holdings
Current SIM Positions
Sector
S&P 500 Weight
SIM Weight
+/-
Information Technology
22.50%
22.98%
0.48%
Financials
14.09%
14.93%
0.85%
Health Care
13.96%
14.47%
0.51%
Consumer Discretionary
12.50%
12.10%
-0.39%
Consumer Staples
9.29%
9.18%
-0.11%
Industrials
10.15%
11.08%
0.93%
Energy
6.32%
5.78%
-0.54%
Utilities
3.18%
2.54%
-0.64%
Materials
2.85%
3.06%
0.21%
Telecommunication Services
2.26%
1.73%
-0.52%
Real Estate
2.91%
2.15%
-0.76%
Total
100.00%
0.00%
Top 10 Holdings
Ticker
Security
Mkt. Value
% of Assets
GOOGL
ALPHABET INC-CL A
$545,467
5.52%
AMZN
AMAZON.COM INC
$499,495
5.05%
VNTV
VANTIV INC
$483,912
4.90%
HON
HONEYWELL INTERNATIONAL INC
$474,727
4.80% GM
GENERAL MOTORS CO
$474,568
ETN
EATON CORP PLC
$452,327
4.58%
MCK
MCKESSON CORP
$452,208
WMT
WAL-MART STORES INC
$436,044
4.41%
GILD
GILEAD SCIENCES INC
$425,010
4.30%
CTSH
COGNIZANT TECHNOLOGY SOLUTIONS
$421,610
4.27%
Grand Total:
$4,665,368
47.20%
Top 5 Performers
ALPHABET INC-CL A
9.05%
DIGITAL REALTY TRUST INC
7.94%
CROWN HOLDINGS INC
5.93%
HONEYWELL INTERNATIONAL INC
5.02%
DELL TECHNOLOGIES INC CLASS V
4.73%

8. HONEYWELL INTERNATIONAL INC 135.19 140.87 4.1% 4.76% -30bps Sell
Industrials: Seth Frey and Sam Goldberg
Stock Recommendation
Stock
Current Price
Target Price
Upside
(Downside)
% of SIM
Basis Adj.
Recommend-ation
HONEYWELL INTERNATIONAL INC
135.19
140.87
4.1%
4.76%
-30bps
 Sell
UNITED CONTINENTAL HOLDINGS INC
79.85
87.7
9.8%
1.78%
0 bps
Hold
EATON CORP PLC
80.23
84.39
5.2%
4.59%
 -30bps
Sell
Reduce industrials weight from 11.13% of portfolio to 10.53%
S&P 500 allocation is 10.15% 8

9. Honeywell: United: Eaton:
Industrials: Seth Frey and Sam Goldberg
Stock Demographics
Honeywell:
Diversified holdings company headquartered in New Jersey
Operates in:
Aerospace
Automotive
Home & Building Technologies
Performance Materials & Technologies
Safety & Productivity Solutions
United:
3rd largest airline when measured by revenue, headquartered in Chicago, IL
Merger of United and Continental airlines in 2010
Business consists of Passenger Travel and Cargo
Eaton:
Headquartered in Dublin Ireland
Operates in:
Electrical Products
Electrical Systems and Services
Hydraulics
Aerospace
Vehicle
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 9

10. Honeywell: United: Eaton:
Industrials: Seth Frey and Sam Goldberg
Stock Statistics
Honeywell:
Current Price:
Target Price:
Beta: .94
EPS (TTM): 6.31
P/E (TTM): 21.42
Analyst Target Price Range:
Median estimate of 3.81% increase.
United:
Current Price: 79.85
Target Price: 87.7
Beta: 1.03
EPS (TTM): 6.39
P/E (TTM): 12.49
Analyst Target Price Range:
Median estimate of 8.95% increase
Eaton:
Current Price: 80.61
Target Price: 84.39
Beta: 1.2
EPS (TTM): 4.29
P/E (TTM): 18.68
Analyst Target Price Range: 59-90
Median estimate of 1.72% increase
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 10

11. Industrials: Seth Frey and Sam Goldberg
Business Analysis

12. Industrials: Seth Frey and Sam Goldberg
Business Analysis

13. Industrials: Seth Frey and Sam Goldberg
Business Analysis

14. Industrials: Seth Frey and Sam Goldberg
Business Analysis
Market Cap./GDP: USA (black), East Asia and Pacific (orange), Euro Area (blue), Latin America and Caribbean (purple)
Federal Reserve, FRED

15. Industrials: Seth Frey and Sam Goldberg
Business Analysis
Key Indicators: Industrial Production and Relative Importance, Electrical systems
Federal Reserve, FRED

16. Key Indicators: Aerospace and Hydraulics
Industrials: Seth Frey and Sam Goldberg
Business Analysis
Key Indicators: Aerospace and Hydraulics
Federal Reserve, FRED

17. Key Indicators: Vehicles
Industrials: Seth Frey and Sam Goldberg
Business Analysis
Key Indicators: Vehicles
Federal Reserve, FRED

18. Consensus Sales Projections Eaton and Honeywell (Millions) Stock 2014
Industrials: Seth Frey and Sam Goldberg
Financial Analysis
Consensus Sales Projections Eaton and Honeywell (Millions)
Stock
2014
2015
2016
E2017
E2018
E2019
HONEYWELL
40,306
38,581
39,302
39,417.8
42,866.9
Yoy% change
3.2%
-4.3%
1.9%
0.3%
3.8%
4.8%
EATON
19,850
19,568
19,545
20,010.3
20,663.0
21,238.4
1.1%
-1.4%
-.1%
2.4%
3.3%
2.8%

19. Industrials: Seth Frey and Sam Goldberg
Financial Analysis

20. Return on Invested capital Stock 2012 2013 2014 2015 2016
Industrials: Seth Frey and Sam Goldberg
Financial Analysis
Return on Equity
Stock
2012
2013
2014
2015
2016
HONEYWELL
24.61
25.78
24.14
26.53
25.54
EATON
10.78
11.67
11.01
12.78
Return on Invested capital
Stock
2012
2013
2014
2015
2016
HONEYWELL
19.83
15.07
14.64
14.78
12.95
EATON
8.44
8.26
7.25
9.18
8.92

21. Effective Tax Rate Stock 2012 2013 2014 2015 2016 HONEYWELL 24.36
Industrials: Seth Frey and Sam Goldberg
Financial Analysis
Effective Tax Rate
Stock
2012
2013
2014
2015
2016
HONEYWELL
24.36
26.79
25.59
26.40
24.83
EATON
2.48
0.58 -
7.65
9.5

22. Stock Performance: Sim Industrials vs S5INDU
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Stock Performance: Sim Industrials vs S5INDU

23. Sensitivity Analysis: Eaton
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Sensitivity Analysis: Eaton
Shares Outstanding
447.3
84.39
10.4%
10.6%
10.8%
11.0%
11.2%
11.4%
11.6%
Current Price $
2.4%
87.60
85.42
83.34
81.35
79.46
77.65
75.92
Implied equity value/share $
2.6%
88.78
86.52
84.37
82.32
80.37
78.51
76.73
Upside/(Downside) to DCF
5.2%
2.8%
90.01
87.67
85.45
83.33
81.32
79.40
77.57
3.0%
91.31
88.88
86.58
82.31
80.33
78.44
Debt
8,277
3.2%
92.69
90.16
87.78
85.51
83.36
81.31
79.36
Cash
543
3.4%
94.14
91.52
89.04
86.69
84.46
82.34
Cash/share
1.21
3.6%
95.68
92.94
90.37
87.93
85.61
83.42
81.34 23

24. Sensitivity Analysis: Honeywell
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Sensitivity Analysis: Honeywell
Shares Outstanding
762.3
140.87
9.1%
9.3%
9.5%
9.7%
9.9%
10.1%
10.3%
Current Price $
3.4%
147.16
142.12
137.41
132.60
128.86
124.97
121.31
Implied equity value/share $
3.6%
150.50
145.18
140.23
135.18
131.26
127.19
123.36
Upside/(Downside) to DCF
4.2%
3.8%
154.09
148.47
143.24
137.93
133.81
129.55
125.54
4.0%
157.97
152.01
146.48
136.54
132.06
127.86
Debt
12,182
162.17
155.82
149.95
144.03
139.46
134.74
130.33
Cash
2,388
4.4%
166.72
159.95
153.71
147.42
142.59
137.61
132.97
Cash/share
3.13
4.6%
171.67
164.42
157.76
151.08
145.95
140.69
135.80 24

25. Stock P/E (TTM) P/B P/S (TTM) P/CF(TTM)
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Valuation Ratios
Stock
P/E (TTM)
P/B
P/S (TTM)
P/CF(TTM)
HONEYWELL
19.01
5.10
2.64
20.68
EATON
18.72
2.27
1.55
11.96
UAL
10.25
2.73
0.63
5.41
S5INDU
21.86
4.54
1.75
15.26

26. Technical: RSI S&P 500 26 Valuation Analysis
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Technical: RSI S&P 500 26

27. Technical: RSI ETN 27 Valuation Analysis
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Technical: RSI ETN 27

28. Technical: RSI UAL 28 Valuation Analysis
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Technical: RSI UAL 28

29. Technical: RSI HON 29 Valuation Analysis
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Technical: RSI HON 29

30. HONEYWELL INTERNATIONAL INC 135.19 140.87 4.1% 4.76% -30bps Sell
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Stock
Current Price
Target Price
Upside
(Downside)
% of SIM
Basis Adj.
Recommend-ation
HONEYWELL INTERNATIONAL INC
135.19
140.87
4.1%
4.76%
-30bps
 Sell
UNITED CONTINENTAL HOLDINGS INC
79.85
87.7
9.8%
1.78%
0 bps
Hold
EATON CORP PLC
80.23
84.39
5.2%
4.59%
 -30bps
Sell
Reduce industrials weight from 11.13% of portfolio to 10.53%
S&P 500 allocation is 10.15% 30

31. Honeywell: United: Eaton:
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Honeywell:
Catalysts for Potential Growth:
Consistent operating margins at 25%
Net producer of cash flow
Relevant production indexes favorably trending
Entrenched company, with low beta, 0.9
United:
Reasons for Potential Growth:
Increased wealth creation in Asia Pacific and the Middle East Capacity
Expansion and Demand for Ultra long flights (higher profit margins)
Eaton:
Reasons for Potential Growth:
Low effective tax rate
Two years of positive, upward trending operating margins
Undervalued valuation Compared to Industrials sector
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 31

32. Honeywell: United: Eaton:
Industrials: Seth Frey and Sam Goldberg
Valuation Analysis
Honeywell:
Risks:
Near price target, 4% upside
Already large market share, inherently less growth upside
TTM slightly underperformed S5INDU
United:
Risks:
Downturn in Global economy, beta of 1
Terrorist attack
Continued dissatisfaction in customer service
Eaton:
Risks:
Downturn in global economy, beta of 1.2
Approaching target price, 5% upside
Declines in commercial truck demand
Inconsistent sales growth and decline over the past 5 years
Lower margins and ROE than HON
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 32

33. Questions? 33 Sector Recommendation
Industrials: Seth Frey and Sam Goldberg
Sector Recommendation
Questions?
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 33

34. Appendix 34 Sector Recommendation
Industrials: Seth Frey and Sam Goldberg
Sector Recommendation
Appendix
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 34

35. 35 Appendix: DCF Honeywell Industrials: Seth Frey and Sam Goldberg
Analyst: Sam Goldberg
Terminal Discount Rate =
9.7%
Date: 7/17/17
Terminal FCF Growth =
4.0%
Year
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
Sales
39,418
40,898
42,867
44,582
46,365
48,219
50,148
52,154
54,240
56,410
58,666
% Growth
3.8%
4.8%
4.0%
Operating Income
7,674
8,227
8,895
9,251
9,621
10,006
10,406
10,822
11,255
11,706
12,174
Operating Margin
19.5%
20.1%
20.8%
Interest
290
284
295
307
319
332
346
359
374
389
Interest % of Sales
0.7%
Taxes
1,918
2,057
2,224
2,387
2,482
2,581
2,685
2,792
2,904
3,020
3,141
Tax Rate
25.0%
Net Income
5,755
6,170
6,671
6,864
7,139
7,425
7,722
8,030
8,352
8,686
9,033
7.2%
8.1%
2.9%
Add Depreciation/Amort
1,065
1,095
1,145
1,191
1,238
1,288
1,339
1,393
1,449
1,507
1,567
% of Sales
2.7%
Plus/(minus) Changes WC
(140)
(125)
(154)
(160)
(166)
(173)
(180)
(187)
(194)
(202)
(210)
-0.4%
-0.3%
Subtract Cap Ex
(1,100)
(1,150)
(1,200)
(1,248)
(1,298)
(1,350)
(1,404)
(1,460)
(1,518)
(1,579)
(1,642)
Capex % of sales
-2.8%
Free Cash Flow
5,581
5,990
6,463
6,648
6,914
7,190
7,478
7,777
8,088
8,411
8,748
7.3%
7.9%
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 35

36. 36 Appendix: DCF Honeywell Industrials: Seth Frey and Sam Goldberg
NPV of Cash Flows
44,465
41%
NPV of terminal value
62,926
59%
Terminal Value
159,087
Projected Equity Value
107,390
100%
Free Cash Flow Yield
5.41%
Free Cash Yield
5.50%
Current P/E
17.9
16.7
15.4
Terminal P/E
17.6
Projected P/E
18.7
17.4
16.1
Current EV/EBITDA
12.9
12.1
11.2
Terminal EV/EBITDA
12.3
Projected EV/EBITDA
13.4
12.6
11.7
Shares Outstanding
762.3
140.87
9.1%
9.3%
9.5%
9.7%
9.9%
10.1%
10.3%
Current Price $
3.4%
147.16
142.12
137.41
132.60
128.86
124.97
121.31
Implied equity value/share $
3.6%
150.50
145.18
140.23
135.18
131.26
127.19
123.36
Upside/(Downside) to DCF
4.2%
3.8%
154.09
148.47
143.24
137.93
133.81
129.55
125.54
4.0%
157.97
152.01
146.48
136.54
132.06
127.86
Debt
12,182
162.17
155.82
149.95
144.03
139.46
134.74
130.33
Cash
2,388
4.4%
166.72
159.95
153.71
147.42
142.59
137.61
132.97
Cash/share
3.13
4.6%
171.67
164.42
157.76
151.08
145.95
140.69
135.80
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 36

37. 37 Appendix: DCF Eaton Industrials: Seth Frey and Sam Goldberg
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 37

38. 38 Appendix: DCF Eaton Industrials: Seth Frey and Sam Goldberg
NPV of Cash Flows
19,667
52%
NPV of terminal value
18,083
48%
Terminal Value
51,344
Projected Equity Value
37,749
100%
Free Cash Flow Yield
6.96%
Free Cash Yield
7.77%
Current P/E
17.5
16.0
15.0
Terminal P/E
15.4
Projected P/E
18.4
16.9
15.8
Current EV/EBITDA
13.5
12.5
11.9
Terminal EV/EBITDA
12.7
Projected EV/EBITDA
14.1
13.1
12.4
Shares Outstanding
447.3
84.39
10.4%
10.6%
10.8%
11.0%
11.2%
11.4%
11.6%
Current Price $
2.4%
87.60
85.42
83.34
81.35
79.46
77.65
75.92
Implied equity value/share $
2.6%
88.78
86.52
84.37
82.32
80.37
78.51
76.73
Upside/(Downside) to DCF
5.2%
2.8%
90.01
87.67
85.45
83.33
81.32
79.40
77.57
3.0%
91.31
88.88
86.58
82.31
80.33
78.44
Debt
8,277
3.2%
92.69
90.16
87.78
85.51
83.36
81.31
79.36
Cash
543
3.4%
94.14
91.52
89.04
86.69
84.46
82.34
Cash/share
1.21
3.6%
95.68
92.94
90.37
87.93
85.61
83.42
81.34
Should the SIM portfolio over or underweight the sector relative to the S&P 500?
What are the major positives that you foresee and the biggest risks to your recommendation?
Within your sector, which industries would you over and underweight versus the S&P 500? Why? 38

39. UAL DCF