Consumer Discretionary Sector Stocks February 23 rd 2010

Consumer Discretionary Sector Stocks February 23 rd, 2010 Sekhar Achanta, Tongyu Zhou

S & P 500 Sector Weights (as of 2/21/2010) Sector Current Index Weight Current SIM Weight Consumer Discretionary 9. 70% 6. 99% Consumer Staples 11. 60% 11. 66% Energy 11. 33% 11. 90% Financials 15. 70% 11. 37% Health Care 12. 65% 14. 30% Industrials 10. 26% 12. 36% Information Technology 18. 84% 19. 04% Materials 3. 49% 3. 46% Telecommunication Services 2. 84% 3. 27% Utilities 3. 58% 2. 94%

Sector Performance YTD and QTD (2/21/2010)

Sector Recommendation • Buy 200 basis points of Consumer Discretionary stocks. • Current holdings are Best Buy, Game. Stop and Comcast. • Buy 100 basis points of Target Corporation (TGT). • Buy 50 basis points of Ross Stores (ROST). • Buy 50 basis points of Royal Caribbean Cruises (RCL).

Target Stores • Target is an upscale discounter • Provides high-quality, on-trend merchandise at attractive prices in clean, spacious and guest-friendly stores. • In addition, Target operates an online business, Target. com. • 1740 Stores in 49 States (including 251 Super Target locations)

Target Earnings Growth Rates

Target EPS Growth Rates

Target Margins

Target Corporation Valuation Analysis Relative to Industry High Low Median Current P/Trailing E 1. 2 . 58 . 96 . 95 P/Forward E 1. 0 . 56 . 99 1. 0 P/B 1. 2 . 6 1. 0 P/S 1. 2 . 7 1. 0 P/CF 1. 3 . 5 1. 1 1. 0 Relative to S&P 500 High P/Trailing E 1. 5 Low. 63 Median 1. 1 Current. 95 P/Forward E 1. 3 . 63 1. 0 P/B 1. 7 1. 2 1. 1 P/S . 7 . 3 . 5 P/CF 1. 5 . 6 1. 1 . 9

Target Corporation Valuation Analysis Absolute Valuation P/Forward E High Low Median 27. 8 11. 9 17. 8 P/S 1. 1 . 3 . 8 . 6 0. 8 120. 97 $96. 77 P/B 5. 8 1. 6 3. 5 2. 4 3. 5 21. 13 $73. 95 10. 87 3. 57 8. 17 6. 33 8. 17 8. 01 $65. 44 17. 0 5. 5 12. 6 9. 3 12. 6 5. 45 $68. 67 P/EBITDA P/CF Current Target E, S, B Target Price Multiple /Share 14. 6 20 $3. 10 $62. 00 Current Share Price : $50. 73 Implied equity value/share : $66. 92 Upside/(Downside) to DCF : 32. 2% Terminal Discount Rate: 11. 0% Terminal FCF Growth: 5. 0%

Ross Stores - Profile • • Ross Stores, Fortune 500 company. Second largest off-price retailer. Revenues of $6. 5 billion. Ross Operates – 904 Ross Stores and 52 DD’s discounts stores – In 27 states and Guam • Offers name brand designer apparel, accessories, footwear and home fashions at 20 -60% discounts.

Ross Stores - Same Store Sales and Inventory Measure Period % Change $ Change Sales Four weeks ended January 30, 2010 13% increase $46 million Sales 13 weeks ended January 30, 2010 14% increase $245 million Sales 52 weeks ended January 30, 2010 11% increase $700 million Inventory 13 weeks ended January 30, 2010 11% decrease Sales 52 weeks ended January 30, 2010 1% decrease

Ross Stores - Stock Repurchase and Dividends • Stock Repurchase – Two-year 750 million dollar stock repurchase program. – 13 percent of total market value. • During fiscal 2009, Ross Stores repurchased – 7. 4 million shares – 300 million dollars. • Dividend – Increased by 45 percent – Current Dividend is 16 cents per share. – Current dividend yield is 1. 4%. • Institutions own 97% of the shares. • Debt to Total Capital is 12%.

Ross Stores - Forecasts Measure Period Sales Year over Year Same Store Sales Year over Year Diluted Shares Year Over Year % Change 5% increase 2% increase 5% decrease

Ross Stores Revenue Growth Rates

Ross Stores Earnings Growth Rates

Ross Stores Margins

Ross Stores Valuation Analysis Relative to Industry High Low Median Current P/Trailing E 1. 5 . 31 . 96 . 87 P/Forward E 1. 3 . 31 . 98 . 88 P/B 2. 1 . 2 1. 4 1. 3 P/S 1. 7 . 3 1. 1 P/CF 1. 8 . 3 1. 1 Relative to S&P 500 High P/Trailing E 1. 4 Low. 28 Median. 96 Current. 80 P/Forward E 1. 3 . 27 . 96 . 83 P/B 3. 1 1 1. 6 1. 2 P/S 1. 0 . 2 . 6 . 7 P/CF 1. 6 . 4 1. 2 1. 0

Ross Stores Valuation Analysis Absolute Valuation High Low P/Forward E 21. 0 7. 0 P/S 1. 4 . 5 . 9 . 8 . 9 $74. 09 $66. 68 P/B 6. 7 2. 4 4. 9 4. 3 4. 9 10. 95 $53. 65 11. 59 3. 92 8. 90 7. 51 8. 9 6. 27 $55. 80 12. 1 10. 7 12. 1 4. 40 $53. 24 P/EBITDA P/CF 17. 2 5. 7 Median Current Target Price Multiple E, S, B /Share 15. 2 12. 1 15. 2 $3. 89 $59. 12 Current Share Price : $47. 1 Implied equity value/share : $87. 75 Upside/(Downside) to DCF : 86. 1% Terminal Discount Rate = 12. 0% Terminal FCF Growth = 5. 0%

Royal Caribbean Cruise – Profile • Royal Caribbean Cruises is a cruise company operating 38 ships. • The Company owns five cruise brands – Royal Caribbean International, – Celebrity Cruises, – Pullmantur, – Azamara Cruises, – CDF Croisieres de France. • Market Cap $5. 63 billion. • Revenues $6. 5 billion. • Net Income $573 million • Operating Margin 5. 67% • LT Debt to Total Capital 51%

Royal Caribbean Cruise - Revenues

Royal Caribbean Cruise - Earnings

Royal Caribbean Cruise - Margins

Royal Caribbean Cruise Valuation Analysis Relative to Industry High Low Median Current P/Trailing E 1. 9 . 36 . 69 1. 8 P/Forward E 1. 7 . 46 . 73 . 67 P/B . 8 . 2 . 5 . 3 P/S 1. 2 . 5 . 9 P/CF 1. 0 . 2 . 6 . 7 High 1. 8 Low. 2 Median. 83 Current 1. 7 1. 5 . 33 . 87 . 99 P/B . 8 . 1 . 4 . 3 P/S 1. 7 . 3 1. 0 . 8 P/CF 1. 3 . 2 . 7 Relative to S&P 500 P/Trailing E P/Forward E

Royal Caribbean Cruise Valuation Analysis Absolute Valuation P/Forward E High Low Median Current Target E, S, B Target Price Multiple /Share 14. 5 15. 0 1. 81 $27. 15 37. 7 4. 0 14. 2 P/S 3. 1 . 2 1. 5 1. 0 1. 5 38. 14 $57. 21 P/B 2. 9 . 2 1. 3 . 8 1. 3 32. 87 $42. 73 12. 12 . 9 5. 63 5. 4 5. 63 4. 87 $27. 47 15. 1 1. 2 7. 7 7. 6 8 3. 46 $27. 68 P/EBITDA P/CF Current Share Price : $26. 3 Implied equity value/share : $35. 37 Upside/(Downside) to DCF : 34. 5% Terminal Discount Rate: 12. 0% Terminal FCF Growth: 5. 0%

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