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Equity Writing for Research

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					Effective Writing for Research

Activity I: Writing Banner Headlines Part A
Directions:
Here are some banner headlines that are descriptive, but a bit too long. Make each one interesting, compelling, and brief. 1. As Expected, Toyota Motor Appoints a New President; Maintain Intermediate Term Accumulate & Long Term Buy Ratings.

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Shares up 178%, Too Much Liquidity in Sector, No Change in Fundamentals, Correction Possible, Downgrading to Neutral

3.

Intermediate Term Rating Raised on Positive Earning Review of Company Earnings Structure; Quality Holding in Consumer Sector Plagued by Weak Spending

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Effective Writing for Research

Activity I: Writing Banner Headlines Part B
Directions:
Write Banner Headlines for the front page given the text provided and the situations described below.

We are initiating coverage of Starbucks Corporation with an intermediate term Neutral and long-term Buy investment opinion. The company is on track to become the dominant brand for all coffee and coffee-based consumer products from its foundation as the leading specialty coffee retailer. However, the stock’s current valuation fully reflects the intermediate term earnings prospects, in our view. We have seen modest multiple expansion in response to international expansion efforts and investors’ increased confidence in the company’s earnings prospects. The stock price advanced 26% during August, ahead of the first company-hosted analyst meeting, and continues to trade at more than 40x our FY97 EPS estimate and 1.2x our estimated 5-year earnings growth rate. Earnings growth should continue to be fueled by rapid unit growth, same store sales gains, brand extension, distribution channel evolution, and margin expansion. In our opinion, these factors can generate a 35% 5-year compound growth rate in Starbucks’s earnings, and they form the basis for our long term Buy rating. The continued rapid unit growth will increase economies of scale and opportunities to leverage the brand with additional and/or expanded joint ventures, further broadening the company’s role in consumer’s lives. It is important to note there that we do not believe Starbucks needs to increase the population of coffee drinkers, but success relies on the company’s ability to convert existing drinkers to the Starbucks brand. We believe that the strategy is sound but proper execution and customer conversion take time.

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Banner Headline under current situation:

2.

Banner Headline after Starbucks loses 3 of its top 5 executive leaders:

3.

Banner Headline after Starbucks buys leading overseas coffee supplier:

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Effective Writing for Research

Activity II: Writing Compelling Bullets
Directions:
Edit the following bullets to make them shorter, more direct and fit within the front page guidelines. Try to restrict the length of each bullet to fewer than 12 words, and lead with the most important information.

• • TMC shares have risen recently as investors expect the company to either attract a takeover offer by an out-of-state bank or to make an accretive acquisition of one of its smaller California thrift competitors. While recent acquisition speculation and a strong market for financial stocks has driven up TMC shares, we have an intermediate term investment opinion of Neutral (3), as we expect a decline in the 1Q’99 operating EPS from 4Q’98 levels (due to a decline in the 1Q’99 net interest margin), and we are concerned with TMC’s current high valuations (15.4x our 1Q’99 estimate of $0.75, annualized, and 268% of tangible book value) when compared to our 1Q’99 forecast of ROE of just 14.4% and ROA of only 0.70%. The reason for the upgrade is the potential sales boost to Aricept following US National Institute on Aging announcement that it will conduct a 3-year, double-blind study on the effectiveness of Aricept, vitamin E and a placebo in preventing mild cognitive impairment (MCI) from developing into Alzheimer’s disease.

•

Net interest income in the latest quarter was flat with year-earlier levels and quarterearlier results. The latest period’s net interest margin of 2.71% was above the yearearlier 2.62%, and above the 2.68% of the 4Q’98. Average earning assets were 3% below year-ago levels, and 1% below quarter-earlier balances. Ratings: intermediate-term Neutral, longterm Accumulate. Estimated fair corporate value: US$3,360 per cellular subscription, for a share price of ¥5.6mn. We believe the share deserves a 20% discount from other global telecom firms, given 1) low mediumterm subscription/EBITDA growth potential, 2) NTT owns most of the shares. For FY3/00, the company is projecting 25% YoY growth in revenues and 13% YoY growth in pre-tax profits. We believe that the sales projections are on the optimistic side, and expect only around 16% YoY growth to ¥51bn. With the decline in gross margins now being experienced, earning growth is also likely to limited to 15% YoY. We plan to update our earnings projections after the company declares its consolidated numbers.

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Effective Writing for Research

Activity III: Distinguishing Between Investment Highlights and Fundamental Highlights
Directions:
Decide whether the following bullets are either investment highlights or fundamental highlights. 1. 2. Raising 2000 EPS to $2.70 from $2.65-$2.70 and 2001 to $3.10 from $3.00-$3.10. It is noteworthy that management has switched gears from excessive expansionism and has initiated concrete measures to bolster profitability. Consequently, opportunistic PC deals could become available. Similar deals like Sony recently aided recovery. Our EPS forecast is unchanged in FY00 and FY01. Second half earnings growth should accelerate as the dilution from the Athena acquisition ends. BHP reported a third quarter profit of A$378m, up 70% YoY. A final dividend of 26 cps was announced. There were no abnormal items. Using a variety of valuation methodologies, we arrive at a share price of ¥18,000, which is our 12-month price objective. We retain our recommendation of Neutral intermediate term, and Buy long term (>1 year). 9. The revenue mix has shifted toward directly marketed drugs which improves visibility and earnings quality.

10. Considered best positioned company to capitalize on outsourcing in labor intensive industries. 11. Timing of sale of consumer finance business reinforces the theme of capital relocation. 12. Despite our sharp upward earnings revision, Takeda does not seem attractively priced relative to major players. We believe that any further substantial upside potential is limited. 13. Announcement was not terribly surprising since management had expressed interest in buying an equity boutique. 14. Sale of SP Finance should raise $280 million in capital and lead to $125 million gain. 15. Higher advertising and promotion and investment spending hold back profits in short term.

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4. 5. 6.

7.

8.

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Effective Writing for Research

Activity IV: Comment Italics
Directions:
Write a story line using comment italics from the following paragraphs. Benson & Hedges and Silk Cut are the first and third largest brand families, giving Gallaher a commanding lead in the premium segment. Like Embassy and Regal, B&H and Silk Cuts’ shares of the premium segment have remained fairly steady over the last four years. Silk Cut was launched in 1964 as a low-tar brand, now holds over 60% of the low-tar segment and is the only stand-alone low-tar brand family. Silk Cut’s only main competitor is Marlboro Lights. Gallaher also has a regional brand, Kensitas, which sells very well in Scotland. In the midprice segment Berkeley Superkings and Benson Hedges Superkings seem to have come under pressure from Imperial’s Superkings in recent years, Gallaher’s ‘low-price’ brands are pitched at a lower price than Imperial’s. Both Mayfair and Sovereign are relatively new brands. Mayfair was launched in 1992, and has been shifted down in price category, from low-price to ultra lowprice. The launch of Sovereign in 1996 was the biggest in the company’s history, with an estimated cost of £20m (£12 for the main brand £8m for Lights). The company says that it is on track with the target it set for market share and we believe that the brand had a market share of just under 2% in Q1 1999. Although it is retailed at only 10p (or 4%) below Lambert & Butler, the brand it was launched to attack, the manufacturer/trade margin on Sovereign is 14% lower. Mayfair and Sovereign do seem to have picked-up share of the low and ultra-low price segments recently - we believe much of this has come from own-label brands. Gallaher’s strategy is a ‘vigorous defense’ of its premium brands, to maintain position in the mid-price brands and grow share of the low-price sector. The company appears to have arrested its decline in market share, but has spent a lot of money doing this, which could leave it open to the charge of chasing market share rather than profits. Given its own leading share of the premium sector, in promoting Sovereign the company could well be reducing the profitability of its own brand portfolio by stealing from the premium sector. Gallaher responds that it needed to promote lower-price brands to react to the existing downtrading trend, so that Lambert & Butler does not gain all this volume for Imperial.

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posted:3/7/2009
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Description: Equity Writing for Research