Consumer Discretionary

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Consumer Discretionary

• November 13, 2007
• Josh Becker
• Blake Defluri
• Casey Leist

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Agenda

• Sector Recommendation Recap
• Group Stock Recommendation
• Business Analysis of Selected Stocks
• Financial Analysis
• Valuation
• Recommendation Recap

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Current SIM Holdings
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Current Position
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Sector Recommendation Recap

• Sector Group Recommendation Maintain current
  weighting
• Class consensus Recommendation Revert weighting
  to SP 500
• Eliminate 180 Basis Points

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Group Stock Recommendation

• Sell all of our holding in Carnival (CCL)
• Eliminates 214 basis points
• Buy 107 basis points Comcast (CMCSA)
• Buy 107 basis points Best Buy (BBY)
• If class disagrees, then buy 34 basis points of
  Best Buy to maintain weighting with SP 500

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Sector Conditions Why Buy Now

• Sector valuations relative to SP 500 are below
  or near 10-year means
• Discretionary setting is historically strong in
  the 4th quarter
• Sector prices has decreased 10 more relative to
  the SP 500 since June 2007
• Value opportunities presently

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Sector Financial Analysis
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Sector Financial Analysis Contd
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Carnival LLC (CCL)

• Current Price 43.89
• (down 5 since September)
• Market Cap 39.16 Billion
• Average Volume 3,571,000
• Cyclical Nature
• Industry General Entertainment
• Target Price 40.00

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Income Statement
Projected Decreasing Margins
Increasing Fuel Costs
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DCF
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Relative Stock Price
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Technical Analysis
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Financial Analysis
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Why Sell

• Weak Growth Potential
• Unimpressive Financial Statements
• High correlation to fuel prices
• Close to 20 of expenses tied to fuel costs
• Less spending on luxury goods will drive price
  down
• MANY other more attractive stocks within sector
• Technical analysis SCREAMS sell

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Comcast (CMCSA)

• Largest U.S. cable multiple system operator
• Trading near 52-week low
• Improving margins
• Capital expenditures are decreasing
• Generates large cash flows
• Healthy Balance Sheet
• Bundle packages presents many opportunities
• Large potential upside in digital phone market

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Current Price 19.38 Target Price
27.76 Potential Upside 43.3
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Best Buy Co. Inc. (BBY)
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Carnival (CCL) vs. Best Buy (BBY)

• Carnival
• Carnival Corporation is a cruise line and
  vacation company that offers cruises to vacation
  destinations.
• Carnival Cruise Lines
• Princess Cruises
• Costa Cruises
• Holland America Line
• PO Cruises
• AIDA Cruises
• Cunard Line (Cunard)
• PO Cruises Australia
• Ocean Village
• Swan Hellenic
• Seabourn Cruise Line
• Windstar Cruises
• Consumer Discretionary Hotel, Resort Cruise
  Lines

• Best Buy
• The leading retailer of consumer electronics and
  entertainment software operates more than 1,100
  stores in the U.S., Canada, and China.1
• Best Buy (BestBuy.com)
• Five Star (Five-Star.cn)
• Future Shop (FutureShop.ca)
• Geek Squad (GeekSquad.com)
• Magnolia A/V (MagnoliaAV.com)
• Pacific Sales Kitchen and Bath Centers
  (PacificSales.com)
• Consumer Discretionary Computer Electronics
  Retail

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Best Buy Business Analysis

• Best-in-Class U.S. consumer electronics retailer,
  based on its digital product focus, knowledgeable
  sales staff, and effective advertising and
  marketing campaigns.1
• Declining average selling prices of digital TVs
  will ignite sales volume and be a key driver of
  BBYs growth.1

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Best Buy Business Analysis Contd

• Upside
• Rewards Zone Program Best Buys offering of hard
  to get products and special discounts to their
  best customers is a great step forward for this
  retailer to separate itself from the commodity
  resellers.2

• Risks
• Sharp decline in the economic climate
• Consumer confidence
• Execute its strategic objectives and meet market
  expectations for sales growth and profitability.1

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Best Buy Financial Analysis

• Revenue ?11 for FY081 ?9-10 for
  FY091
• Growth 150 net new stores worldwide1
  Projected 3-4 comparable store sales
  gain in FY081
• Margins Will widen, due to SGA expense
  leverage.1
• EPS FY09 3.69, 18?1 ?10-15 Next
  Five years1
• ROE 24.041

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Net Margin 3.83
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Current Ratio1.44
Debt to Equity 1.18
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Best Buy Valuation
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Best Buy Valuation

• Current P/E 16.1
• Sector 27.8
• Current Price/Sales .49
• Sector 3.5
• Current Price/Book 5.25
• Sector 5.2
• Current Price to Cash Flow 11.72
• Sector 18.1

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Best Buy Valuation
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Best Buy Valuation
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Best Buy Valuation

• CURRENT PRICE 45.57
• SP 12-Mo Target Price 63.00
• Credit Suisse Target Price 59.00
• My 10 Year DCF 69.00
• P/E 18x earning 65.34
• Target Buy Price Under 53.00

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Best Buy Recap

• One is only being asked to pay the multiple of a
  slightly better than average commodity reseller,
  but one that comes with a great balance sheet and
  upside2
• Average Target Price 64.09 ?42
• Target Buy Price Under 53.00
• 20 return on an exit at Target

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Group Stock Recommendation

• Sell all of our holding in Carnival (CCL)
• Eliminates 214 basis points
• Buy 107 basis points Comcast (CMCSA)
• Buy 107 basis points Best Buy (BBY)
• If class disagrees, then buy 34 basis points of
  Best Buy to maintain weighting with SP 500

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Questions?