it:telecom stock evaluation
TRANSCRIPT
Information Technology Stock Selection Report
Spring 2016 James Vance Corey Belcher
Sector Analysis
• Information Technology sectors covers 7 sectors: IT Services, Software, Internet Software and Services, Semiconductors and Semiconductor Equipment, Electronic Equipment, Instruments and Components, Communications Equipment, Technology Hardware, Storage, and Peripherals. • New upcoming sector is still Health Care Technology
Sector Performance
Stocks
Current Stocks• Alphabet Inc. Class C Capital
Stock • Apple Inc. • MasterCard Inc. • Cerner Corp. • Facebook
Proposed Stocks• Red Hat Inc. • Visa Inc. • Activision Blizzard • Cisco Systems
Alphabet Inc. Class C Capital Stock
• S&P Industry – Internet Software and Services • Stock Type – Aggressive Growth • Economic Moat – Wide • Moat Trend – Stable
Alphabet Inc. Valuations
Alphabet Inc. Analyst Opinions
Alphabet Inc. MD&A
• Monetization Metrics o “Cost-per click” o “Paid clicks”
• Google Websites/Services o Gmail o YouTube o Finance o Maps o Google Play
• Management's Opinion o Rising competitive advantage in the mobile world o Large cash flow – growth opportunities
Alphabet Inc. Risks
• We are exposed to financial market risks: including changes in currency exchange rates and interest rates. (10 Q)
Apple Inc.
• S&P Industry – Technology Hardware, Storage, and Peripherals • Stock Type – Cyclical • Economic Moat – Narrow • Moat Trend – Positive
Apple Inc. Valuations
Apple Inc. Analyst Opinions
Apple Inc. MD&A
• Innovative Hardware, Software and Services o iOS o iTunes o iPhone o iPad o iPod Touch o Apple Watch o Mac Book
• Management’s Opinions o Rapid technological change o Depends on performance of resellers o Depends in part on third party software developers o Brand loyalty
Apple Inc. Risks
• We are exposed to financial market risks: including changes in currency exchange rates and interest rates. (10 Q)
• Many large tech competitors willing to sell products at low costs
MasterCard Inc.
• S&P Industry – IT Service • Stock Type – Cyclical • Economic Moat – Wide • Moat Trend – Stable
MasterCard Inc. Valuations
MasterCard Inc. Analyst Opinions
MasterCard Inc. MD&A • Driving Acceptance • Diversifying customer base • Electronic payments • Person-to-person transfers • Taking advantage of physical and digital worlds
• Management’s Opinion oSubject to regulation oConsolidation in the banking industry oSecurity breaches/fraudulent activity could to lead to brand damage
MasterCard Inc. Risks
• Potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as: interest rates, foreign currency exchange rates, security breaches, and regulation. (10 Q)
Facebook Inc. Class A
• S&P Industry – Internet Software and Services • Stock Type – Aggressive Growth • Economic Moat – Wide • Moat Trend – Stable
Facebook Inc. Valuations
Facebook Inc. Analyst Opinions
Facebook Inc. MD&A
• DAU & MAU • Investments
o Instagram/WhatsApp oMessenger
• Management’s Opinion o“Investing aggressively and adding the strength of the business today is
putting us in a strong position to invest in the future” – Zuckerberg/Wehner
Facebook Inc. Risks
• We are exposed to market risks including: changes to foreign currency exchange rates, interest rates, and inflation. We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Euro. (10 Q)
• Twitter and Snapchat
Cerner Corp.
• S&P Industry – Health Care Technology • Stock Type – Aggressive Growth • Economic Moat – Wide • Moat Trend – Stable
Cerner Corp. Valuations
Cerner Corp Analyst Opinions
Cerner Corp. MD&A
• Management’s Opinion oOur revenues are primarily derived by selling, implementing and
supporting software solutions, clinical content, devices and services that give health care providers secure access to clinical, administrative and financial data in real or near-real time, helping improve quality safety and efficiency in the delivery of health care.
Cerner Corp. Risks
• Foreign exchange risk between USD and GBP
Cisco Systems Inc.
• S&P Industry – Communication Equipment • Stock Type – Cyclical • Economic Moat – Narrow • Moat Trend – Stable
Cisco Systems Valuations
Cisco Systems Analyst Opinions
Cisco Systems MD&A
• Building the Internet of Things • Customers, in every industry, increasing using technology and,
specifically, the network to grow their business, drive efficiencies and try to gain a competitive advantage increasingly digital world, data is the most strategic asset and is increasingly distributed across every organization and ecosystem on customer premises, and at the edge of the network and in the cloud. (10 Q)
Cisco Systems Risks
• Foreign currency risks • Political or social unrests • Adverse tax consequences, including imposition of withholding or
other taxes on our global operations • Economic instability or weakness or natural disasters in a specific
country or region, including the current economic challenges in China and global economic ramifications of Chinese economic difficulties; environmental and trade protection measures and other legal and regulatory requirements, some of which may affect our ability to import our products, to export our products from, or sell our products in various countries
Red Hat Inc.
• S&P Industry – Internet Software • Stock Type – Aggressive Growth • Economic Moat – Narrow • Moat Trend – Stable
Red Hat Inc. Valuations
Red Hat Inc. Analyst Opinions
Red Hat Inc. MD&A• Red Hat and Microsoft
o “Going back just five years, open source was all about offering cheaper alternatives to proprietary software. Today, it’s moved from commoditization to open source being about faster innovation. Innovation is happening first in open source. If you’re doing any type of a scale-out infrastructure, it’s probably going to be open source. If you’re looking at implementing a DevOps process, you’ll want to be using open source. If you’re going to do anything with big data, it’s going to be open source. And, of course, the cloud was born using open source software”. – Jim Whitehurst
• Management’s Opinion
• Investments in technologies and partnerships continued to generate strong results as customers transform their IT infrastructure through the increasing adoption of open source technologies and cloud computing.
• had four consecutive quarters of total revenue growth of 20% or higher on a year-over-year constant currency basis
• “While we continued to invest in our business, strong revenue growth has driven non-GAAP operating income growth of 18% and operating cash flow growth of 16% year-to-date for fiscal 2016.”
Red Hat Inc. Risks
• We are exposed to the impact of interest rate changes, foreign currency exchange rate fluctuations and changes in the market value of our investments. (10 Q)
Activision Blizzard
• S&P Industry – Software • Stock Type – Slow Growth • Economic Moat – Narrow • Moat Trend – Stable
Activision Blizzard Valuations
Activision Blizzard Analysts Opinions
Activision Blizzard MD&A
• The Activision Blizzard Media Networks ("Media Networks") business announced in 2015 which builds on our efforts in competitive gaming and the growing eSports industry. • The Activision Blizzard Studios ("Studios") business announced
in 2015 which is devoted to creating original film and television content based on the company's extensive library of iconic and globally-recognized intellectual properties. • Downloadable versions of games vs hard copies
Activision Blizzard Risks
• We are party to routine claims, suits, investigations, audits and other proceedings arising from the ordinary course of business, including with respect to intellectual property rights, contractual claims, labor and employment matters, regulatory matters, tax matters, unclaimed property matters, compliance matters, and collection matters. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity. (10 Q)
Visa Inc.
• S&P Industry – IT Services • Stock Type – Cyclical • Economic Moat – Wide • Moat Trend – Stable
Visa Inc. Valuations
Visa Inc. Analyst Opinions
Visa Inc. MD&A
• Almost exactly what MasterCard MD&A is: • Driving Acceptance • Diversifying customer base • Electronic payments • Person-to-person transfers • Taking advantage of physical and digital worlds
• Management’s Opinion o Subject to regulation oConsolidation in the banking industry o Security breaches/fraudulent activity could to lead to brand damage
Visa Inc. Risks
• Potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as: interest rates, foreign currency exchange rates, security breaches, and regulation. (10 Q)
FLIR Systems Inc.
• S&P Industry – Electronic Equipment, Instruments and Components • Stock Type – Slow Growth • Economic Moat – N/A • Moat Trend – N/A
FLIR Systems Valuations
FLIR Systems Analysts Opinions
FLIR Systems MD&A
• World leader in sensor systems that enhance perception and awareness.Provides advanced surveillance and tactical defense capabilities, improving personal and public safety and security, facilitating air, ground, and maritime navigation
FLIR Systems Risks
• Exposure to foreign exchange fluctuations and changing dynamics of foreign competitiveness based on variations in the value of the United States dollar • Anticipate that international sales will continue to account for
a significant percentage of revenue in the future • Fluctuations in orders and sales due to seasonal variations and
customer sales cycles, such as the seasonal pattern of contracting by the United States and certain foreign governments
Telecommunication Stock Selection Report
Spring 2016 James Vance Corey Belcher
Sector Analysis
• The telecommunication sector provides services for hardware including television, radio, internet, local area networks/wide area networks, and phone. Services are provided via microwave, satellite, and cable.
Sector Performance
Stocks
Current Stocks• AT&T
Proposed Stocks• Crown Castle • Verizon Wireless
AT&T
• S&P Industry – Diversified Telecommunication Services • Stock Type – High Yield • Economic Moat – Narrow • Moat Trend – Stable
AT&T Valuations
AT&T Analysts Opinions
AT&T MD&A • AT&T acquired DIRECTTV on July 24th • Equipment expenses increased $69, or 1.6%, in the third quarter
and $897, or 7.2%, for the first nine months of 2015. Expense increases in the third quarter are primarily due to customers choosing higher priced wireless devices. The increase for the first nine months is primarily due to the continuing trend of customers choosing higher-priced wireless devices. • Broadcast, programming and operations expenses increased
$3,043 in the third quarter and $3,332 for the first nine months of 2015 due to our acquisition of DIRECTV. Also contributing to the increase were higher content costs for our AT&T U-verse® (U-verse) subscribers.
AT&T Risks
• Interest Rate Risk • Foreign exchange Risk • Competition
Verizon Wireless
• S&P Industry – Diversified Telecommunication Services • Stock Type – High Yield • Economic Moat – Narrow • Moat Trend – Stable
Verizon Valuations
Verizon Analysts Opinions
Verizon MD&A
• Winning bidder in the auction of 65 MHz of spectrum in the Advanced Wireless Services (AWS)-3 band
• Acquisition of AOL for a total of $3.8B agreement with Frontier Communications Corporation (Frontier) pursuant to which Verizon will sell its local exchange business and related landline activities in California, Florida and Texas, including Fios Internet and video customers revenues grew 4.6% during 2015 driven by a 54.4% increase in equipment revenue as a result of an increase
• in device sales, primarily smartphones, expect to continue to attract and maintain the loyalty of high-quality retail postpaid customers expect Fios broadband and video penetration to positively impact our Mass Markets revenue and subscriber base operating costs will increase as a result of the expected increase in the volume of smartphone sales
Verizon Risks
• Interest Rate Risk • Foreign exchange Risk • Competition
Crown Castle
• S&P Industry – Real Estate Investment Trust (REIT) & Diversified Wireless • Stock Type – Aggressive Growth • Economic Moat – Narrow • Moat Trend – Stable
Crown Castle Valuations
Crown Castle Analysts Opinions
Crown Castle MD&A
• Potential growth resulting from wireless network expansion and new entrants • Site rental revenues under long-term tenant leases with
contractual escalations • Revenues predominately from large wireless carriers • Majority of land interest under our towers under long-term
control • Debt portfolio with long dated maturities extended over
multiple years, with the majority of such debt having a fixed rate
Crown Castle Risks • Our primary exposures to market risks are related to changes in
interest rates which may adversely affect our results of operations and financial position. We seek to manage exposure to changes in interest rates where economically prudent to do so by utilizing fixed rate debt. Our interest rate risk relates primarily to the impact of interest rate movements on the following, after giving effect to our 2016 Refinancing's: • the potential refinancing of our $12.1 billion in existing debt,
compared to $11.9 billion in the prior year; • our $2.4 billion of floating rate debt representing approximately 19%
of total debt, compared to 35% in the prior year; and potential future borrowings of incremental debt.