JPM_US Equity Markets 2019 Outlook_watermark

Dubravko Lakos-Bujas

Equity Strategy and Quantitative Research

(1-212) 622-3601

07 December 2018

dubravko.lakos-bujas@jpmorgan.com

Actual Annual/LTM — Per Share Data

LTM

JPM Strategy (Revenue and Margin Drivers)

Consensus

2019 Trade Scenarios…

10%

35%

55%

Trade

Income Statement

Dec '08

Dec '09

Dec '10

Dec '11

Dec '12

Dec '13

Dec '14

Dec '15

Dec '16

Dec '17

Jun '18

2018 Escalation

Cease-

Trade

Weighted

Fire

Deal

Base

Consensus

Net Sales

$1,042

$908

$963

$1,053

$1,092

$1,117

$1,163

$1,127

$1,151

$1,232

$1,293

$1,333

$1,386

$1,399

$1,419

$1,409

$1,413

• % chg Y-o-Y

1.7%

-12.9%

6.0%

9.4%

3.8%

2.2%

4.2%

-3.1%

2.1%

7.0%

9.0%

8.2%

4.0%

5.0%

6.5%

5.7%

6.0%

Less: Cost of Goods Sold

765

642

661

732

755

772

805

787

802

857

899

• % chg Y-o-Y

9.2%

-16.0%

3.0%

10.7%

3.2%

2.3%

4.3%

-2.2%

1.9%

6.9%

9.2%

• COGS as % of Sales

73.4%

70.7%

68.7%

69.5%

69.1%

69.1%

69.2%

69.8%

69.7%

69.6%

69.5%

Gross Income

277

266

301

321

338

345

358

340

349

374

394

• % chg Y-o-Y

-14.5%

-4.1%

13.3%

6.5%

5.1%

2.1%

3.9%

-5.1%

2.6%

7.4%

8.8%

• Gross Margin

26.6%

29.3%

31.3%

30.5%

30.9%

30.9%

30.8%

30.2%

30.3%

30.4%

30.5%

Less: SG&A Expenses (ex D&A)

134

127

135

142

148

150

157

151

154

163

170

• % chg Y-o-Y

-1.4%

-5.0%

6.0%

5.3%

4.1%

1.2%

4.7%

-3.7%

2.1%

6.1%

7.3%

• SG&A as % of Sales

12.8%

14.0%

14.0%

13.5%

13.5%

13.4%

13.5%

13.4%

13.4%

13.3%

13.1%

EBITDA

143

139

167

179

190

195

202

189

195

211

224

231

233

243

247

244

• % chg Y-o-Y

-24.0%

-3.2%

20.0%

7.5%

5.9%

2.8%

3.3%

-6.2%

2.9%

8.4%

9.9%

15bp

-50bp

5bp

12bp

3bp

• EBITDA Margin

13.8%

15.3%

17.3%

17.0%

17.4%

17.5%

17.3%

16.8%

16.9%

17.1%

17.3%

17.3%

16.80%

17.3%

17.4%

17.3%

Less: D&A

50

46

46

49

53

56

60

65

68

71

73

• % chg Y-o-Y

9.5%

-6.8%

-0.5%

5.8%

8.7%

5.8%

6.9%

8.1%

4.4%

4.5%

5.9%

• D&A as % of Sales

4.8%

5.1%

4.8%

4.6%

4.9%

5.0%

5.2%

5.8%

5.9%

5.7%

5.6%

EBIT

94

93

121

130

137

139

142

124

127

140

151

• % chg Y-o-Y

-34.6%

-1.2%

30.2%

8.1%

4.9%

1.7%

1.9%

-12.2%

2.2%

10.6%

11.9%

• as % of Sales

9.0%

10.2%

12.5%

12.4%

12.5%

12.4%

12.2%

11.0%

11.0%

11.4%

11.7%

Interest Expense

42

21

20

19

19

19

19

20

22

25

26

-6bp

-5bp

• % chg Y-o-Y

-24.3%

-49.7%

-7.0%

-0.4%

-0.6%

-3.7%

1.5%

5.3%

12.2%

12.2%

12.3%

-5bp

0bp

-6bp

• Implied Interest Rate (Int Exp as % Avg Debt)

4.13%

2.68%

2.58%

2.59%

2.64%

2.50%

2.46%

2.47%

2.63%

2.74%

2.81%

2.79%

2.79%

2.85%

2.85%

2.84%

EPS Adjustment: GAAP to Operating EPS

(37)

(12)

(17)

(23)

(25)

(29)

(39)

(47)

(49)

(54)

(58)

• % chg Y-o-Y

2.3%

-66.8%

42.8%

32.6%

8.0%

15.3%

36.4%

20.4%

3.9%

9.4%

12.0%

• Other as % of Revenues

-3.5%

-1.3%

-1.8%

-2.2%

-2.3%

-2.6%

-3.4%

-4.2%

-4.3%

-4.4%

-4.5%

Pre-Tax Income

89

84

118

134

142

149

162

152

154

169

183

• % chg Y-o-Y

-28.5%

-5.7%

41.4%

13.1%

6.2%

4.8%

8.6%

-6.4%

1.4%

10.0%

11.9%

Income Taxes

23

23

33

36

39

40

43

34

36

37

34

21.0%

• Effective Tax Rate (%)

26.3%

27.5%

28.0%

27.0%

27.1%

26.5%

26.7%

22.6%

23.3%

22.0%

18.7%

21.0%

21.0%

21.0%

21.0%

Corporate Actions Impact (e.g.,, buybacks, M&A)

0.5

(1.5)

(1.8)

0.4

1.4

0.1

0.8

1.4

2.0

1.1

1.6

$2 00

$3.52

$4.11

$4.70

$4.38

• % Change in Divisor

-0.8%

2.4%

2.1%

-0.4%

-1.3%

-0.1%

-0.7%

-1.2%

-1.7%

-0.8%

-1.09%

-1.2%

2.1%

2.5%

2.8%

2.7%

Operating EPS

$65.47

$60 80

$85.28

$97.82

$103.80

$109 68

$118.78

$117.46

$118.10

$132.00

$148.54

$165.00

$168.00

$177.00

$181.00

$178.00

$176.25

• % chg Y-o-Y

-23.1%

-7.1%

40.3%

14.7%

6.1%

5.7%

8.3%

-1.1%

0.5%

11.8%

18.3%

25.0%

1.8%

7.3%

9.7%

8.1%

6.8%

• Net Income Earnings Margin

6.28%

6.69%

8.86%

9.29%

9.50%

9.82%

10.21%

10.42%

10.26%

10.72%

11.49%

12.38%

11.88%

12.37%

12.44%

12.36%

12.47%

Net Buybacks

($0 8)

($0.1)

$1.41

$2.49

$2.00

$2.55

$2.77

$2 61

$2.75

$2.69

$3.68

$4 02

$3.52

$4.11

$4.70

$4.38

$3.54

• % Contribution to EPS

-1.2%

-0.1%

1.7%

2.5%

1.9%

2.3%

2.3%

2.2%

2.3%

2.0%

2.5%

3.0%

2.1%

2.5%

2.8%

2.7%

2.1%

• $'s in billions

-$139

-$10

$180

$308

$252

$361

$429

$427

$448

$452

$579

$749

$600

$700

$800

$750

$580