Building The. Best Equity. Research Firm In. The Business

Transcription

1 Building The Best Equity Research Firm In The Business

2 About us CRC History: Cleveland Research Company is an Independent Investment Research firm headquartered in Cleveland, Ohio. Founded by Eric Bosshard and Chris Byke, CRC opened its doors with a staff of 43 that were formerly employed with a leading institutional equity research firm. In the past four years we have grown our firm to 68 employees. Cleveland Research Company has received numerous rankings with Institutional Investor s yearly Independent Research survey, including our research teams, individual analysts, and CRC as a whole. Our efforts and experience in sell-side research over the past 15+ years have led us to build a very unique business model that creates a competitive advantage for our clients. We are talking to suppliers and customers, developing contacts, and conducting surveys day after day, month after month allowing us to spot trends and inflection points in the end markets we cover. CRC Research: Focus is one of the keys to our success, and this is true for the names we cover. We conduct financial research on 130+ public companies in four sectors: Consumer, Healthcare, Industrial, and Technology. We have superior insights into our list of covered companies, allowing us to have more impact with our clients. CRC Clients: We are focused on our clients, and have a limited distribution list to ensure top service to all 125 accounts. Our clients are the 125 largest U.S. money managers, including Mutual Fund Companies and Hedge Funds. CRC Culture: Our core goal is to build the Best Equity Research firm in the business. We accomplish this with a firm of great people and an environment that fosters teamwork and excellence like no other. The culture at Cleveland Research Company is simply unrivaled. It takes the hard-working, personable attitudes of the Midwest and combines them with the competitive nature of Wall Street. It is the optimal experience for a competitive, driven, team-focused, entrepreneurial-minded, young student to launch their career. The Company is run by two of the most trustworthy and all-around good guys I ve met. It is a great place to work because it is the epitome of work hard, play hard. Sean Indiana University: Summer Intern 10 We are competitive as a team, but not with each other. The attitude is that we succeed or fail as a team. People here live balanced lives. We work hard and at a high level, but this is not a culture of workaholics who never leave the office. Emma Notre Dame University: MRA Hired June 10

3 The Internship Equity Research Intern Modeled after the entry level MRA position CRC offers internships part time throughout the academic year, as well as full time during the summer. We look for motivated individuals with strong analytical and communication skills, who are up to the challenge of working in a fast paced, team oriented atmosphere. MBA students and undergrad students in their Junior / Senior year are preferred. My major project for the summer was to evaluate expanding coverage on a Consumer team. I worked throughout the summer to establish a contact base and gain incremental insights into the works of the companies. I listened to earnings calls, managed our contact database, reached out to new contacts, and more. Sean Indiana University, Summer Intern 10 Main Responsibilities Interns are expected to contribute to the creative and dynamic nature of our work environment. They support the efforts of our research teams in a variety of ways; establishing industry-level contacts, and contributing directly to our business and the product we offer our clients. During the summer I was able to interview executives from Fortune 500 companies, assist with the launching of coverage in two industries, and have a direct impact on the research produced by my team. I learned how to critically analyze stocks, reach out to industry contacts, and transform insight gained from conversations into financial models that were used in recommendations to buy-side clients. Steve Walsh University, Summer Intern 10 Unique Opportunities This summer I helped my team develop coverage on a new industry, I drove to Toronto to engage in hands-on research of this new industry, and flew to New York with a Sr. Analyst to meet with T. Rowe Price and other clients. I would be shocked if any other internship allowed for even one of these opportunities. Kevin Indiana University, Summer Intern 10 I knew that I had fallen into a pretty special situation with this company from day one. I have been given all of the necessary tools to excel in my position, and having the support of such an amazing group of employees at CRC has made it all that much easier. Russ University of Dayton, Summer Intern 08

4 Market Research Associate MRA s are members of a sector specific research team and work directly with a Senior Research Analyst and Research Associate. We look for individuals with strong work ethic and interest in learning the equity research industry, with attention to detail and the ability to multi task. A graduate or an undergraduate business degree, with excellent communication and well developed analytic skills is ideal. We provide competitive salary, plus bonus potential. Main Responsibilities MRA s are an integral part of developing and maintaining industry contacts and networks, assisting in the production of written reports, and supporting our internal sales force. Since my team is initiating coverage I ve spent a lot of time learning, researching, and figuring out the best methods to accomplish this. It was awesome to be making an impact on something I had little to no previous knowledge about before working. Adam Miami University, MRA hired December 09 People at the firm have blown me away with their helpfulness. I don t know many people that drop what they are doing when someone comes up to them with a one-off question, but at CRC there are 70 people like that. Adam Miami University, MRA hired December 09 If you are looking for a first job that consists primarily of busywork and getting coffee for your boss, look elsewhere. Already, I ve met with industry contacts outside the office, and I will travel to industry conferences twice in the next month. Emma Notre Dame University, MRA hired June 10 Training and Development To facilitate growth and a learning environment, CRC has established an ongoing Training and Development Program for all employees. New hires are quickly welcomed and acclimated to CRC through various social events and introductions with current employees. Shadowing senior analysts, spending multiple days in the Sales department, meeting with the CEO, and various team lunches are just a few things to expect the very first week. My Senior Analyst has an open-door policy, and I m encouraged to share my thoughts and opinions. You are immediately surrounded by people who are at the top of the game, and they are eager to help you continuously improve your skills and get to the elite level someday. Emma Notre Dame University, MRA hired June 10

5 Impactful Equity Research Bed Bath & Beyond 80% Bed Bath Shares Have Signficantly Outperformed The Retail Index Background Early June 2010 Bed Bath & Beyond had been one of the best performing companies in the retail space over the prior several quarters. With the bankruptcy of a major competitor (Linens N Things) in late 2008, BBBY was picking up a large amount of market share in the home goods industry. Additionally, government housing stimulus had resulted in a significant amount of turnover in the housing market which increased demand levels for home furnishings in the eye of the consumer. Bed Bath capitalized well on these trends and in their Fiscal 4th quarter of 2010 (Dec-09 to Feb-10) the company reported an impressive 11.5% increase in same-store sales (a key retail metric). Expectations in the investment community were very high for the stock and many expected at least another double-digit same store sales increase in the coming quarter. The Work June 7, 2010 We discussed current trends with numerous contacts we had developed in the home good industry since we had reached the end of Bed Bath s fiscal 1st quarter (March-10 to May-10). Through our conversations it became clear that although March sales at Bed Bath were strong, it seemed that April had slowed and then May sales had softened considerably. We thought the strong start to the quarter would minimize the risk to earnings in the current quarter, but we thought the slowdown in same-store sales trends during the back half of the quarter cast some doubt on the rest of the year. 60% 40% 20% 0% -20% -40% -60% Source: Baseline BBBY The Call June 17, 2010 Before the market opened on June 17th we summarized our thoughts on Bed Bath & Beyond and here is an excerpt from the note that we published: Bed Bath & Beyond (BBBY: $45.12; NEUTRAL) BBBY: Sharp Moderation in Sales Trends in Back-Half of Q1 Leaves Us Concerned Over Balance of FY2011; 1Q11 Earnings Risk Looks Minimal. (Cleveland Research) Key Points 1. Key inflection: We think comp sales trends slowed meaningfully over the last 45 days of the quarter through May. 2. We see little risk to 1Q11E but slowdown over the past six weeks leaves us concerned about the balance of FY We would take profits into any near-term strength as expectations are high for the stock, making Q1 earnings beat less important. Conclusion We do not see risk to consensus earnings expectations in 1Q11 (modeling 1QE of $0.51 vs. consensus $0.48) but our work in the channel points to a meaningful softening of comp trends in the back half of 1Q which makes us more cautious heading into Q2. We think expectations for Bed Bath and the home goods sector remain higher than the rest of retail and our recent work in the channel suggests that outperformance may be coming to an end. We think street expectations may need to be revised to incorporate less sales upside in future quarters which could make it difficult for significant earnings outperformance beyond the first quarter. We would recommend investors take profits into any near-term strength as we think risk/reward at current levels skews more toward downside risk over the next six months. RLX The Reaction June 17, 2010 The Result June 23, 2010 Bed Bath shares had closed at $45.12 on June 16th; On June 17th they finished the day at $41.26, down $3.86 (8.6%). On a day where the S&P 500 was actually positive, Bed Bath s market cap fell by roughly $1 billion. Throughout the course of the day numerous financial news services clamored to find the reason why the stock had come under such pressure (we don t talk to the press) as the sudden drop seemed inexplicable considering there was no other news out that day pertaining to Bed Bath and the market as a whole was actually trading slightly positive for the day. Bed Bath reported their Fiscal 1Q earnings and while the company beat earnings expectations for the quarter (as we expected), their sales showed a meaningful slowdown from the prior quarter and the company showed further caution when they issued future earnings guidance that was below expectations. The stock, which had been at $45 a week ago, would fall another $2 to $39 the next day on the heels of their earnings release. An institutional client that shorted the stock at the market open on June 17th stood to make around 13% over the course of five trading days.

6 Cleveland Research Company 1375 E. 9th Street, Suite 600 Cleveland, OH Office: Fax: