Industry Analysis: Finding and Evaluating

the Story

Drew Newell
February 16, 2006
Overview
^ What defines an Industry
^ Why we look at them
^ Where we find Industry
information
^ How to find the story

February 16, 2006 Industry Analysis 2

Industry
^ A specific branch of
manufacture and/or trade
^ Consists mainly of company
competitors
^ Producers of perfect substitutes

February 16, 2006 Industry Analysis 3

Stock Analysis Relies on Industry Outlook
^ Industry Trends affect:
^ Future Revenues
^ Market Sizing
^ Threat of Competitors
^ Relative Cheapness of Company
Stock
^ Short-term Stock Price Pressure

February 16, 2006 Industry Analysis 4

Evaluating Industry: Competition Analysis
^ Industry Shaping Factors:
^ Product Differentiation
^ Existence of Monopolies
^ Patents Held by Other
Companies
^ Technological/Procedural
Advancements
^ Barriers to Entry
^ Foreign Trade Policy

February 16, 2006 Industry Analysis 5

Comparative Valuation: Competitors
^ Identifying Competitors
^ Perfect Substitution – Obvious
competitors
^ Imperfect Substitution – Goods
serve same basic purpose
^ Size and Scope of Business

Competitors put
fundamental analysis in
perspective

February 16, 2006 Industry Analysis 6

Industry/Product/Market Analysis
^ Consider 4 P’s:
^ Product
^ Quality
^ Brand Name
^ Place
^ Market Location
^ Distribution Methods
^ Promotion
^ Advertising
^ Sales Force
^ Price
^ Product demand
^ Costs

February 16, 2006 Industry Analysis 7

Macro vs. Micro Economic Analysis
^ World Economics
Global Economy
^ U.S. Economics
^ Look at Economic and Monetary
Indicators
U.S. Economy
^ Unemployment Rate
^ Industrial Production
^ Durable Orders
Sector
^ Corporate Profits
^ Retail Sales
^ Housing Activity
Industry
^ No one Indicator is Most
Important
^ Look at Composite of 11 Company
Leading Indicators
February 16, 2006 Industry Analysis 8
Story: Where the Company Fits
^ Company:
^ Takes advantage of industry
trends
^ Positioned to capture/create
market share
^ Demonstrated effective
management decisions
^ New products in pipeline and
news releases

February 16, 2006 Industry Analysis 9

Resources
^ Economic Data:
^ Economic Statistic Briefing Room:
www.whitehouse.gov/fsbr/esbr.html

^ Industry Data:
^ www.morningstar.com

^ Competitors:
^ www.investors.com – Stock Checkup
^ http://finance.yahoo.com
^ www.morningstar.com
^ www.wsj.com

February 16, 2006 Industry Analysis 10

Sample Data from Briefing Room

February 16, 2006 Industry Analysis 11

SFCC: Research Services
^ Questions to Ask:
^ Who are its competitors?
^ What makes a good drug tester?
(Apply 4 P’s)
^ How is the Industry expected to
perform?
^ What are positive/negative
impacts on industry?

Use the these impacts to

hypothesize positive and
negative scenarios

February 16, 2006 Industry Analysis 12

SFCC
^ Look to Morningstar.com for
Competitors
^ Factors for Success in
+ -
Research Services Industry:
R&D Negative
^ Cost
Spending Publicity
^ Timeliness
Medical
^ Methods ± Deaths
Testing
^ Industry expected to perform
Out-
well (see article) sourcing

February 16, 2006 Industry Analysis 13