Morning Briefing - Standard & Poor's
Morning Briefing - Standard & Poor's Morning Briefing - Standard & Poor's
S&P INVESTMENT POLICYEconomic and Stock Market Outlooks02/23/2011• S&P still believes that a near-term decline in equity prices will end up on the order of apullback or correction, but not a new bear market. Granted, we believe a lengthy disruption inLibyan oil production and an increased threat of civil unrest spreading to Saudi Arabia wouldroil world oil and equity markets. Barring that, we are comforted somewhat by oil inventoriesthat could cover a 50-60 day Libyan disruption, and that Saudi Arabia, Kuwait and the UnitedArab Emirates have the spare capacity to replace all of what could be lost by a shutdown ofoutput from Algeria and Libya. Also, S&P still forecasts a slowly recovering global economy, aprojected 15% increase in operating EPS for the S&P 500, and a continued improvement inmargins for the S&P 500.This is an excerpt of the story, for the rest please visit the S&P Investment Strategy page onMarketScope Advisor at http://advisor.marketscope.com.For advisors interested in subscription and pricing information to MarketScope Advisor,http://advisor.marketscope.com, or for retail investors interested in The Outlook,http://www.outlook.standardandpoors.com, please contact the sales team at (877) 219-1247 ormsa@standardandpoors.com.FEBRUARY 24, 2011 MORNING BRIEFING4 OF 7
FEBRUARY 24, 2011 MORNING BRIEFINGGlossaryS&P STARS - Since January 1, 1987, Standard & Poor’s Equity ResearchServices has ranked a universe of U.S. common stocks, ADRs (AmericanDepositary Receipts), and ADSs (American Depositary Shares) based on agiven equity’s potential for future performance. Similarly, Standard &Poor’s Equity Research Services has used STARS® methodology to rankAsian and European equities since June 30, 2002. Under proprietarySTARS (STock Appreciation Ranking System), S&P equity analysts rankequities according to their individual forecast of an equity’s future totalreturn potential versus the expected total return of a relevant benchmark(e.g., a regional index (S&P Asia 50 Index, S&P Europe 350® Index orS&P 500® Index)), based on a 12-month time horizon. STARS wasdesigned to meet the needs of investors looking to put their investmentdecisions in perspective.S&P Quality Rankings (also known as S&P Earnings & DividendRankings)- Growth and stability of earnings and dividends are deemedkey elements in establishing S&P’s earnings and dividend rankings forcommon stocks, which are designed to capsulize the nature of this recordin a single symbol. It should be noted, however, that the process also takesinto consideration certain adjustments and modifications deemed desirablein establishing such rankings. The final score for each stock is measuredagainst a scoring matrix determined by analysis of the scores of a largeand representative sample of stocks. The range of scores in the array ofthis sample has been aligned with the following ladder of rankings:A+ Highest B- LowerA High C LowestA- Above Average D In ReorganizationB+ Average NR Not RankedB Below AverageS&P Issuer Credit Rating - A Standard & Poor’s Issuer Credit Rating isa current opinion of an obligor’s overall financial capacity (itscreditworthiness) to pay its financial obligations. This opinion focuses onthe obligor’s capacity and willingness to meet its financial commitmentsas they come due. It does not apply to any specific financial obligation, asit does not take into account the nature of and provisions of the obligation,its standing in bankruptcy or liquidation, statutory preferences, or thelegality and enforceability of the obligation. In addition, it does not takeinto account the creditworthiness of the guarantors, insurers, or otherforms of credit enhancement on the obligation.S&P Core Earnings - Standard & Poor's Core Earnings is a uniformmethodology for adjusting operating earnings by focusing on a company'safter-tax earnings generated from its principal businesses. Included in theStandard & Poor's definition are employee stock option grant expenses,pension costs, restructuring charges from ongoing operations, write-downsof depreciable or amortizable operating assets, purchased research anddevelopment, M&A related expenses and unrealized gains/losses fromhedging activities. Excluded from the definition are pension gains,impairment of goodwill charges, gains or losses from asset sales, reversalof prior-year charges and provision from litigation or insurancesettlements.S&P 12 Month Target Price – The S&P equity analyst’s projection ofthe market price a given security will command 12 months hence, basedon a combination of intrinsic, relative, and private market valuationmetrics.Standard & Poor’s Equity Research Services – Standard &Poor’s Equity Research Services U.S. includes Standard & Poor’sInvestment Advisory Services LLC; Standard & Poor’s EquityResearch Services Europe includes Standard & Poor’s LLC-London; Standard & Poor’s Equity Research Services Asia includesStandard & Poor’s LLC’s offices in Singapore, Standard & Poor’sInvestment Advisory Services (HK) Limited in Hong Kong,Standard & Poor’s Malaysia Sdn Bhd, and Standard & Poor’sInformation Services (Australia) Pty Ltd.Abbreviations Used in S&P Equity Research ReportsCAGR- Compound Annual Growth RateCAPEX- Capital ExpendituresCY- Calendar YearDCF- Discounted Cash FlowEBIT- Earnings Before Interest and TaxesEBITDA- Earnings Before Interest, Taxes, Depreciation andAmortizationEPS- Earnings Per ShareEV- Enterprise ValueFCF- Free Cash FlowFFO- Funds From OperationsFY- Fiscal YearP/E- Price/EarningsPEG Ratio- P/E-to-Growth RatioPV- Present ValueR&D- Research & DevelopmentROE- Return on EquityROI- Return on InvestmentROIC- Return on Invested CapitalROA- Return on AssetsSG&A- Selling, General & Administrative ExpensesWACC- Weighted Average Cost of CapitalDividends on American Depository Receipts (ADRs) and AmericanDepository Shares (ADSs) are net of taxes (paid in the country oforigin).5 OF 7
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S&P INVESTMENT POLICYEconomic and Stock Market Outlooks02/23/2011• S&P still believes that a near-term decline in equity prices will end up on the order of apullback or correction, but not a new bear market. Granted, we believe a lengthy disruption inLibyan oil production and an increased threat of civil unrest spreading to Saudi Arabia wouldroil world oil and equity markets. Barring that, we are comforted somewhat by oil inventoriesthat could cover a 50-60 day Libyan disruption, and that Saudi Arabia, Kuwait and the UnitedArab Emirates have the spare capacity to replace all of what could be lost by a shutdown ofoutput from Algeria and Libya. Also, S&P still forecasts a slowly recovering global economy, aprojected 15% increase in operating EPS for the S&P 500, and a continued improvement inmargins for the S&P 500.This is an excerpt of the story, for the rest please visit the S&P Investment Strategy page onMarketScope Advisor at http://advisor.marketscope.com.For advisors interested in subscription and pricing information to MarketScope Advisor,http://advisor.marketscope.com, or for retail investors interested in The Outlook,http://www.outlook.standardandpoors.com, please contact the sales team at (877) 219-1247 ormsa@standardandpoors.com.FEBRUARY 24, 2011 MORNING BRIEFING4 OF 7
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