1. Student Investment Management BUSFIN 4228 Stocks Material Sector
-Garrett Koutsopoulos, Kun Li,
Quinn Liu, Jiaxuan Li,

2. Overview

3. Overview
SIM Weight

4. Overview
YTD Performance vs. S&P 500

5. Owens-illinois Business
Owens-Illinois is a manufacturer of glass materials, especially glass containers.
Industry leader
The company’s profit report is divided into segments
for the management level to have a better understanding
of performances of different segments and have a
rational allocation of the company’s resources.

6. Growth Drivers Owens-Illinois Increasing market of glass containers
The acquisition of Vitro's food and beverage
Helped the company to gain competitiveness in the growing packaging market in Mexico
The company’s Joint venture relationship with Constellation Brands
Will be earnings accretive in the future till 2034.

7. Financials Owens-Illinois
The basic material sector is a category for companies involve in the discovery, development and processing of raw material. The sector includes the mining and refining of metals, chemical products and forestry products. This sector is sensitive to change in the business cycle. Because companies in this sector supply materials for construction, they depend on a strong economy.

8. Valuations Owens-Illinois Fair price to book value -- Good sign
Lower sales ratio – Lower margin
Fair P/E and EV/EVITDA compare to competitors
But P/E is generally high
However, there should not be worries about these valuation multiple ratios since the company suffered from the shrink of sales in the past five years and it just got recovered from declining in sales revenue, this could be a result of the company put more money in to research and development in the past years.

9. Increasing inventories in China
Owens-Illinois
Risks
Increasing inventories in China
Decrease in commodities prices
Government regulation (environmental)
Panic sells about P/E being too high
Here is the graph for materials and commodity price. It turns out that they do not have that much correlation. commodities include copper, crude oil, wheat, coffee beans and gold.  “Soft”: one that cannot be stored for extended periods. Sugar, coffee, cocoa and cotton are example of soft commodities. They also fall into non-edible(paper products, household cleaning products) and edible(wine, beer categories0
Several factors that may affect the material sector: increase demand for more raw material to support their infrastructure building for developing county. Accommodative monetary: central banks in the developed world are now in easing mode, with support of economic activity from Central banks.
Nagtive affect: reduction in demand from china, demand for raw material decrease as technological advance. Increase domestic production, for example from a import country to a export country.

10. Owens-Illinois

11. Huntsman
Business
Huntsman is a leading global manufacturer of chemical goods with operations in over 30 different countries. The company was founded in 1970 by the Huntsman family. The sales for the company can be broken down into advanced materials (13%), Polyurethanes(53%), performance products (25%), and Textile Effects (9%).
Ticker HUN
Sector Materials
Industry Chemicals
Price as of 4/16/ $30.87
Market Cap (MN) $7,483
Stock Rating SELL
Target Price $20.93
Implied Upside %
Dividend Yield %
Total Implied Return %

12. Growth Drivers Trends and Risks Huntsman
Growth and consumption in the emerging markets
Low production costs (Due to high bargaining power of buyers)
Trends and Risks
Economic weakness could lead to underperformance
Commodity market fluctuations: earnings and cash flows remain very sensitive to volumes, prices, and margins
Exchange rate risk
Material sector: mature phase of the life cycle; low margins and growth period.
Huntsman: revenue declined since 2016, and do not have clear signals for fully recovering with its un-diversified product line.
Market: Potential trade war between China and the US: increasing labor costs and decreasing demand from the emerging markets.

13. Financial Analysis Huntsman Materials Sector Financial Ratios Basis
Current
Median
High
Low
P/E
20.85
19.58
24.7
14.8
P/B
2.75
3.2
3.9
1.5
P/S
1.83
1.3
2.07
0.6
P/EBITDA
11.25
8.2
12.3
3.7
Projected Target Multiples
Absolute Valuation
Current
Target Multiple
Target/Current
Target Price
P/E
14.4 14
0.972
$27.47
P/B
2.6
2.0
0.769
$21.73
P/S
0.8
0.75
0.934
$26.39
Average Price
$25.20

14. Huntsman
DCF Analysis
Discount Rate: 11% to reflect the cyclical nature of the company
Terminal Growth Rate: 2.5% to match the long-term economic growth rate
Valuation range: $18.54 — $22.81
10.00%
10.25%
10.50%
10.75%
11.00%
11.25%
11.50%
11.75%
12.00%
1.50%
21.57
21.13
20.71
20.30
19.92
19.55
19.20
18.86
18.54
1.75%
21.67
21.22
20.78
20.37
19.97
19.59
19.23
18.89
18.56
2.00%
21.79
21.31
20.86
20.44
20.03
19.64
19.28
18.92
18.58
2.25%
21.91
21.42
20.96
20.52
20.10
19.70
19.33
18.96
18.62
2.50%
22.05
21.55
21.07
20.61
20.18
19.77
19.39
19.01
18.66
2.75%
22.21
21.69
21.19
20.72
20.28
19.85
19.45
19.07
18.71
3.00%
22.39
21.84
21.33
20.84
20.38
19.95
19.53
19.14
18.77
3.25%
22.59
22.02
21.48
20.98
20.50
20.05
19.62
19.22
18.83
3.50%
22.81
21.65
20.63
20.17
19.72
19.31
18.91

15. Recommendation HuntsMan 0.00 % SELL: 1.68% Method Weight Price Target
DCF
0.85
$20.18
P/E
0.05
$27.47
P/B
$21.73
P/S
$26.39
Final Target Price 1
$20.93
SELL: 1.68%
0.00 %

16. Business Crown Holdings
Crown Holdings Inc. (CCK) is one of the world's leading producer of metal packaging products. The company manufactures beverage cans, metal food cans, closures, and aerosol cans. Beverage cans are the main business segment for the company as it makes up 58% of sales. Crown mainly operates in developed markets making 62% of their market and emerging markets making up the rest of the 38%.
Cans and containers are made out of metal (steel/aluminum)
Internationally driven business model: Americas, Asia, Europe

17. Growth Drivers Trends and Risks Crown Holdings
International/emerging market Growth (78% of sales)
Consistent demand
Leader in emerging markets presence
Trends and Risks
Exchange rates if the dollar strengthens or weakens
Relies heavily on commodity pricing
High debt levels may lead to liquidity problems

18. Financials Crown Holdings Key Ratio Comparison Crown Ball Silgan
$61.25
8.00%
9.00%
10.0%
11.00%
12.00%
2.1%
$77.59
$65.53
$56.57
$49.66
$44.18
2.6%
$82.33
$68.66
$58.75
$51.23
$45.34
3.1%
$88.03
$72.34
$53.00
$46.63
3.6%
$95.05
$76.70
$64.14
$55.01
$48.08
4.1%
$103.89
$81.95
$67.52
$57.31
$49.71
Key Ratio Comparison
Crown
Ball
Silgan
Westrock
Revenue
8,698
10,983
4,090
14,860
Operating Margin
12.38%
9.31%
8.73%
7.26%
Return on Assets
3.19%
2.24%
6.92%
2.94%
Return on Equity
66.80%
10.14%
43.65%
7.06%
Return on Inv. Capital
8.29%
5.19%
13.70%
5.43%
EPS
2.38
1.05
2.42
2.77
P/E
21.30
37.80
11.50
9.40

19. Recommendation Crown Holdings
I recommend a HOLD for Crown Holdings Inc. at the current price. Crown will continue to perform well in a consistent sector. Crown is expanding internationally, building cash flows, and buying back shares. All while outperforming their peers in margins and expectations. If prices dip below $50 I would recommend buying more shares of Crown.
Risks in Recommendation:
International Markets: 78% of sales were derived from intl. markets so various risks regarding exchange rates may cause financial distress for the firm.
Material Pricing: Profits will be adversely effected if the price of raw materials or energy rises and Crown cannot increase the price of its products.
Debt: Serious debt levels may cause problems in liquidity for Crown moving forward if markets take a downturn.
Method
Weight
Price
DCF
80%
$61.25
Multiple
20%
$49.78
Final Price
100%
$58.95

20. Business W. R. Grace Company Overview: Supplier of specialty chemical
Serves food beverages, consumer products, petroleum refinery worldwide.
Segment:
Grace Catalysis Technologies
Refining
Refining: Fluid catalytic cracking (help distill crude oil)
Advanced Refinery
Hydro processing catalyst (Upgrade heavy oil into lighter products)
Polyolefin
Application, such as high pressure pipe, medical device and textiles
Grace Material Technologies
Coatings for food, chemical process

21. Growth Drivers W. R. Grace
Innovation in terms of new products, new environmental products.
Grace can serve end-user for their specific needs.
Rising demand in Asia market for special chemicals.
Grace is very active in technological superiority and innovation, which help them obtain patents in different countries.

22. Buy！ Valuation W. R. Grace
DCF use 10.5% terminal discount rate and growth rate at 4% annually. PE, EV/EBITDA, PS and PB are similar to industrial average. The implied equity value is $78.63 per share with 30% upside to DCF and stock price is under value right now.
Buy！

23. Recommendation Stock Current Price Target Price Weight +/-
Owens-Illinois (OI)
$21.54
$25.35
HOLD
Crown Holdings Inc. (CCK)
$52.25
$58.95
1.28%
Huntsman Corp. (HUN)
$30.87
$20.93
1.68%
-1.68%
SELL
W.R. Grace & Co.
$61.26
$78.63
BUY