2. udallas.edu/cob
Consumer Discretionary Sector
• The sector of the economy that consists of businesses that sell nonessential goods
and services
• LUV, RCL, AMZN, MCD, SBUX, TSLA
• Cyclical stocks, not defensive
• Mostly not good investments when the market is performing poorly
4. udallas.edu/cob
Company
• Starbucks' recent transaction gains suggest that it remains a key consumer
destination, validating the significance of its brand intangible asset
• Unlike many companies in the consumer cyclical space, Starbucks has shown a
willingness to invest in high-growth potential projects
• In 1Q16, Starbucks' served over 23 million more customer occasions from its global
company store base
5. udallas.edu/cob
SWOT Analysis
Strength Weakness Opportunity Threats
Brand Recognition
and large Market
Share
High Operating
Costs
Foreign expansion
and technology
innovation
Low entry barriers
and market
saturation
Quality Products and
affordable Luxury
Expensive Product
Development:
Acquisitions
Joint Ventures
Fair trade and green
initiatives
Supply Chain
management and
commodity price
pressure
Brand Loyalty and
employees
satisfaction
Business Model that
depends on retail
coffee
Strategic
partnerships and
acquisitions
Exchange rate risk
and global slowdown
7. udallas.edu/cob
Starbucks Corporation
Macroeconomics
Oil prices: raising oil prices will reduce future
consumer`s disposable income
Little effect from the Brexit fallout due to Starbuck`s
strong balance sheet
Catalysts
Consistent financial performance: strong operating
profitability and consistent sales growth
Diversify into different geographies and delivery
channels such as mobile order and pay
Management
Strong organizational culture and structure
Promoting ethical business
Awarded as one of the “World’s Most Ethical
Companies”
Risk
Coffee prices volatility
Intense competition in each market the company
operates in
Foreign currency exchange rates fluctuation
9. udallas.edu/cob
Investment Thesis
Adjusted Equity Value $165.775 bil
Current Market Cap $85.4 bil
Evaluation: Undervalued
Recommendation: Buy
Morningstar Rating:
Suggested Share Price $113.16
Current Share Price $58.31
11. udallas.edu/cob
Company
• CEO Steve Easterbrook set in motion a major turnaround in 2015, including:
• Reorganizing the company into four segments based on the maturity and competitive
position of its different markets
• Refranchising 4,000 locations by the end of 2018
• Targeting $500 million in net annual
• S, G, and A expense reductions
12. udallas.edu/cob
SWOT Analysis
Strength Weakness Opportunity Threats
Largest market share
in the world
(Big Mac Index)
Unhealthy food
menu
Concentrate on
healthier food
choices
Trend towards
healthy food
Generation targeting Negative publicity
by others
Focus on teenage
customers
Saturated fast food
market
Brand value $109
billion (approx.)
High employee
turnover
Offer new products
and home delivery
Local restaurant
chains
14. udallas.edu/cob
McDonald's Corp.
Macroeconomics
Chinese economy growth
New legal minimum wage levels in the U.S.
Foreign currency exchange rates
The impact of interest rate changes
Catalysts
Expansion in Asia: especially in China (McDonald’s
third-largest market)
Rolling out all-day breakfast menu initiatives
Management
The management outlined plans to refranchise 4,000
restaurants by the end of 2018, which is going to
reduce the cost of operation by $500 million
The Company has begun reviving sales and profits by
cutting costs, and simplifying menus
Risk
Intense competition in the fast food market
Global & domestic economic conditions
Foreign currency exchange rates fluctuation
Supply chain interruptions may increase costs or
reduce revenues
16. udallas.edu/cob
Investment Thesis
Adjusted Equity Value $186.245 bil
Current Market Cap $106.8 bil
Evaluation: Undervalued
Recommendation: Hold
Morningstar Rating:
Suggested Share Price $212.16
Current Share Price $121.71
18. udallas.edu/cob
Company
• Royal Caribbean Cruises Ltd. is funded primarily by passenger ticket revenues, 72%
of total annual revenues
• RCL is actively expanding its business and trying to maintain its market share
19. udallas.edu/cob
SWOT Analysis
Strength Weakness Opportunity Threats
Strong brand
positioning and
recognition
High liquidity risk
from low current
ratio
Plans to build,
finance and operate
new terminals
Fuel, Currency rate,
Taxes, government
regulations
Global/Diverse
customer
segmentation
Less price
compatibility in
cruise industry
Expansion into
different
Demographics
Abnormal weather
Patterns, and
terrorism
Advance technology
and fuel efficient
systems
Slowing demand in
the European Market
Favourable trends in
global cruise
industry
Full Competition and
Growth restrictions
in Australia
20. udallas.edu/cob
Competitors
RCL : Royal Caribbean Cruises Ltd.
PCLN : The Priceline Group Inc.
CUKPF : Carnival PLC
CCL : Carnival Corp.
OLCLF : Oriental Land Co Ltd.
21. udallas.edu/cob
Royal Caribbean Cruises Ltd.
Macroeconomics
Fuel price fluctuation
Government regulation (highly regulated)
Consumer confidence
Foreign currency exchange rates
Catalysts
Growing demand in China: China accounted for 1
million cruise passengers in 2015. This is expected to
grow to 4.5 million passengers per year in 2020
Strong cruise market in the U.S.
Management
Richard D. Fain has been the CEO of Royal Caribbean
Cruises Ltd. since 1988
The company's 'double-double' strategy aims to double
EPS by 2017 and achieve double-digit ROIC by
reducing the cost and increasing sales growth
Risk
Fluctuations in the foreign currencies exchange rates,
fuel costs and interest rates
Fear of terrorists and pirate attacks, war, and other
hostilities and the spread of contagious diseases could
have a negative impact on company`s operations
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Investment Thesis
Suggested Share Price $84.86
Current Share Price $73.04
Adjusted Equity Value $18.265 bil
Current Market Cap $15.7 bil
Evaluation: Undervalued
Recommendation: Hold
Morningstar Rating:
25. udallas.edu/cob
Company
• Southwest Airlines Co. boasts the lowest leverage among its industry peers
• The Debt-to-EBITDA ratio has declined from 0.72x to 0.62x at the end of 1Q16
• Less debt tends to make a stock less volatile and less risky
• “Last 3 years have been the best financial years for the company”
26. udallas.edu/cob
SWOT Analysis
Strength Weakness Opportunity Threats
Largest airlines in
the world in terms of
highest number of
passengers per year
Heavy dependence
on tickets revenues
Recovery of
US Airline Industry
Price fluctuations in
petroleum markets
Strong brand image
& Strong fleet
operations
Heavy dependence
on a single producer
– Boeing
International
Expansion
Joint ventures can
negatively affect
brand image
Recognized as a
great value and
excellent services
Does not offer
segmentation
(business flights,
first class, etc.)
Longer flights are
being introduced
Regulation
restrictions and
intense competition
27. udallas.edu/cob
Competitors
LUV : Southwest Airlines Co.
DAL : Delta Air Lines Inc.
AAL : American Airlines Group Inc.
RYAOF : Ryanair Holdings PLC
UAL : United Continental Holdings Inc.
28. udallas.edu/cob
Southwest Airlines Co
Macroeconomics
Growing global economy
Oil price fluctuation
Business Cycle
Interest rates change
Catalysts
Strong demand for travel: The airline saw an 8.8%
YoY growth in its traffic numbers
Decline in crude price: has helped airlines decrease
expenses tremendously
Management
Current management focus on short route journeys by
following the point-to-point model
They also focus on cost leadership strategy (low cost
pricing strategy)
Risk
Volatility in oil price poses great danger of unexpected
cost increase
Airport capacity constraints and air traffic control
inefficiencies could limit company’s growth
30. udallas.edu/cob
Investment Thesis
Suggested Share Price $141.97
Current Share Price $37.36
Adjusted Equity Value $90.672 bil
Current Market Cap $23.9 bil
Evaluation: Undervalued
Recommendation: Hold
Morningstar Rating:
32. udallas.edu/cob
Company
• E-commerce is a high growth market, which means high long-term profitability
potential
• Amazon.com Inc. provides high quality for customers using technology, excellent
customer service, and low cost solutions
• Amazon manages the risk through diversification and adding emerging business
lines to its portfolio
33. udallas.edu/cob
SWOT Analysis
Strength Weakness Opportunity Threats
America's largest
online retailer
High Operating
Costs
Acquisitions can
extend the product
line and strengthen
the technical
platform
Poor publicity with
publishers due to the
pricing model
Diversified product
lines
Late in entering
emerging markets
like China and India
The rising demand
of online shopping in
U.S.
Launch of Apple's
iPad has intensified
the competition
Kindle builds strong
presence in eBooks
Patent infringement
issues
Global expansion Foreign exchange
fluctuation and taxes
35. udallas.edu/cob
Amazon.com, Inc.
Macroeconomics
The upcoming presidential U.S. elections
Oil prices: raising oil prices will reduce future
consumer`s disposable income
Catalysts
Revenue growth expectation: by 20.9% from $134.1
billion in 2016 to $162.1 billion in 2017
Huge growth in Amazon international sales: grew by
23.5% from 2015
Management
Current management led by CEO Jeff Bezos focuses
on a cost leadership strategy
Risk
Intense competition
Stock price is highly volatile
High dependence on senior management, particularly
Jeffrey P. Bezos, President, CEO, and Chairman
Foreign exchange risk
36. udallas.edu/cob
Sensitivity Analysis
Suggested Share Price $908.71
Current Share Price $745.81
Cost of Capital 7.42%
10 years growth rate 10%
WACC
Growth
8.00% 10.00% 12.00%
6.00% 1,285.27 1,285.27 414.13
7.42% 4,090.97 908.71 505.72
9.00% (2,156.33) (2,156.33) 709.85
38. udallas.edu/cob
Investment Thesis
Suggested Share Price $908.71
Current Share Price $739.61
Adjusted Equity Value $428.756 bil
Current Market Cap $349.0 bil
Evaluation: Undervalued
Recommendation: Buy
Morningstar Rating:
40. udallas.edu/cob
Company
• Model 3 beginning at just $35,000, an average American budget to buy a car,
deliveries will begin by the end of 2017
• Tesla says more than 130,000 preorders have been placed, and that number will
continue to rise
• By the end of 2017, when the Model 3 launches, Tesla says it will have a total of
7,200 Superchargers, double the number available today
• The direct competitor for the Model 3 is the Chevy Bolt. GM says “the car will have
an electric range greater than 200 miles and a price, after tax incentives, of around
$30,000”
41. udallas.edu/cob
SWOT Analysis
Strength Weakness Opportunity Threats
High growth market Increasing operating
cost
Global trend
Of green energy
Well-established
brands competition
(Toyota,
Volkswagen)
Environment
friendly
Expensive: can only
cater to an audience
with means
New models with
lower cost
Global economy`s
slowdown
Loyal customer base Long battery
charging time
Volatility of oil
market and industry
Gasoline-Electric
hybrids
43. udallas.edu/cob
Tesla Motors Inc.
Macroeconomics
Firm`s innovative technologies hold the potential to
disrupt large segments of the economy and drive
growth in U.S. for years to come
The use of automation & technologies affect country`s
unemployment & inflation
Catalysts
Giga factory: the world's biggest battery plant, which
will increase the production of lithium-ion battery cells
China sales ramp up
Super-Charger Network
Management
SolarCity's acquisition deal led by two of CEO Elon
Musk's cousins after it stock has fallen by 75% since
early 2014
Elon directly owns 21% of Tesla`s stock, which keeps
his economic interests aligned with outside
shareholders
Risk
Tremendous uncertainties due to the future of electric
vehicles and energy storage
Battle to keep stores factory-owned rather than
franchised, which raises legal risk and could stall
growth
