RIF 2016 Annual Report

A student managed multi-strategy global macro fund within
the Quinlan School of Business. The objective of the Rambler

Investment Fund (RIF) is to generate an absolute return while
offering students a unique opportunity to gain insight on
portfolio management and security analysis.
Table of Contents
Page 3
Pages 3-4
Page 5
Pages 5-6
Page 7
Pages 8-13
History and Overview
Research Process
Current Holdings and Historical Performance
Market Outlook
Managing Members
Currency Shares Japanese Yen ETF Report
Pages 14-23
WisdomTree Australia & New Zealand Debt Fund Report
Pages 24-38
Antero Resources Report
Pages 39-49
Lululemon Athletica Report
Pages 50-59
Terra Tech Report
Pages 60-65
Domestic Airline Industry Report
Pages 66 - 69
Pages 70-90
Teucrium Corn ETF Report
McDonald's Report
History & Overview of RIF

The Rambler Investment Fund (RIF) was started
in 2015. A portion of the universitys
endowment fund was set aside and invested
into a portfolio of bonds and equities by Eric
Jones and Professor Steven Todd. With strong
push from the clubs founders, the portfolio
became open to student analysis. The first
student-driven trade was made on April 17,
2015. The club is open to any Loyola student
who wishes to learn about financial markets
and portfolio analysis.
RIF has several classifications for members that
are determined by commitment, work
performance, and interest. The club is led by
members of the Investment Committee (IC),
Rick Osty, Andrew Hadley, and Frank Angevine.
Members of the IC take on different roles to
assist students with their research and
understanding of the funds investment thesis.
These three students act as specialists covering
different sectors and asset classes in order to
better analyze all areas of the financial markets
and guide students in their research.
Below the investment committee are the Active
Analysts. Active Analysts are students who have
shown a strong interest in researching
investment opportunities as well as contributing
to RIFs assessment of the global economy.
Students actively working on investment reports
are considered Active Analysts.
In addition to the IC and Active Analysts, the
club serves as a way for students to learn about
valuing stocks and bonds, analyzing
commodities and alternative investments,
interpreting asset correlations, and assessing
the conditions of the domestic and global
economies. Social Members are welcome at all
club meetings, guest-speaker events, and
investment presentations. The hope is for Social
Members to grow their interest in the club and
pursue positions as Active Analysts over time.
Research Process
As a multi-strategy fund, RIF takes a top-down
approach to analyzing markets to determine how
to invest the funds capital. We begin by assessing
the global economy to better understand what
economies offer the greatest opportunities for
growth. This research includes looking into GDP
growth, various debt ratios, the credit cycle, and
other macroeconomic indicators that help explain
a nation or regions economic health. Once the
global economic environment has been assessed,
we research more granular indicators specific to
individual regions or countries. Since the portfolio
is reexamined and rebalanced every six months,
analysts look for areas in the global economy that
offer the highest growth potential specific to the

funds time horizon.
The structure of the fund allows analysts to look for
opportunities in commodities, fixed income,
equities, and currencies. Throughout the research
process, analysts work with members of the
investment committee to assess industry trends as
well as determine the value and risk of specific
investments. These risks are interpreted by
analyzing a variety of factors that may enhance or
hinder an investment within a specific industry.
Only when analysts have presented enough
analysis of a particular asset class and industry are
they allowed to proceed further with their research
on a specific investment.
Equities At the beginning of each semester,
members of the Investment Committee as well as
analysts assess economic indicators, equity
markets, and new trends to offer guidance to club
members on the health of the overall economy.
The goal of this is to drive club members towards
researching industries that offer investment
opportunities. Only once healthy industries are
identified are members able to identify specific
equity opportunities. In valuing equities, analysts
seek out equities that may be undervalued or
poised for growth.
Commodities Since commodity prices are heavily

driven by factors pertaining to supply and demand,
analysts research trends in these factors for
individual commodities in order to identify catalysts
for changes in commodity prices. These factors
include population growth, changes in standards
of living in different regions, sociocultural trends
and changes in preferences, weather, government
policy, and other drivers.
Fixed Income Research that is conducted on fixed
income focuses on, monetary policy, credit risk,
macroeconomics and relative valuation to yield
curve benchmarks. These depths in which these
factors are covered vary based on the type of fixed
income being researched. In reports where the
fixed income is priced in another currency,
currency factors are also analyzed. Attention is also
placed on the intrinsic characteristics of the fixed
income securities, convexity, duration and yield
being the most important.
Current Holdings & Historical Performance

The Rambler Investment Fund is currently invested
in a variety of ETFs and equities. We have recently
rebalanced the portfolio in order to be wellpositioned for the possible volatility to come in
2017 with expected surprises from the new
administration, rising interest rates, increased
security threats around the world, and a number of
other factors. We have used a mean variance
optimization (MVO) model to assess the weights of
our investments within the portfolio in order to
align our risk with our expected returns for 2017.
Every six months, RIF reassesses and rebalances the
portfolio based on changes in the economy and
market sentiment. Investment reports are created
by analysts and members of the IC and then
pitched to the IC as well as University officials. The
content of the reports are assessed in terms of
quality and the potential benefits to the portfolios
strength. At this point, the fund may realize gains
from existing positions or alter the weights of
existing positions in order to free up capital and
invest in a new security.
$11,000
Comparative Returns
$10,500
$10,000
$9,500
$9,000
$8,500
Rambler Investment Fund
S&P 500
10Y Treasury
Market Analysis & Outlook for 2017

RIFs analysis of the global economys strength as
well as the outlook for future growth in the markets
is constantly changing. Prior to the election, RIF was
looking to invest heavily in opportunities that thrive
during times of low inflation and economic growth.
Additionally, RIF was researching several industries
that have recently become overbought or
unattractive due to changes in market sentiment.

Some of these opportunities included investments
in silver, gold, coffee, and U.S. bonds. However, in
light of the surprise election of Donald Trump,
RIFs stance on inflation, equity markets, and the
global economy as a whole has changed
drastically.
The election of Trump has certainly altered the
opinions of many analysts and policymakers
around the world. As domestic equity markets have
hit record highs and P/E ratios have grown far
higher than their historical averages, we believe
that equity markets as a whole are overbought and
remain hesitant to invest a large proportion of
funds into equities with high market caps. That said,
we believe the valuations of several particular
companies are accurate and growth outlook in the
mid to long-term is still strong.
Fixed Income RIF expects treasury yields to rise for
a portion of the year while remaining a buying
opportunity depending on the changing risk
landscape. On a technical basis (RSI), treasuries are
cheap. However, there has been some short-term
appreciation in inflation indicators which leads our
fund to heed with more caution in domestic fixed
income than in 2016. We believe there is a short to
mid-term opportunity for an uptick in inflation but
this would need to result from rising energy prices
along with a stronger U.S. consumer.
Equities The Federal Reserves reluctance to
frequently raise rates in 2016 has further enforced
the belief that the broad economy is not nearly as
healthy as equity markets would have investors
believe. Trumps agenda regarding Obamacare,
taxes, and fiscal spending pose a large value
proposition for U.S. equities. Because of this we
have rotated some of our funds capital into
favorable U.S. equity names from a bottom-up
research approach.
Commodities The market for commodities,
precious metals, and industrial metals was volatile
in 2016 and we expect this volatility to persist
throughout 2017. These markets will be highly

dependent on Trumps economic plans as well
central bank policy decisions, China, Russia, and
other key players in global economic growth.
Macro Risk One of RIFs focuses for risk
management is the monitoring of macroeconomic
indicators from China, specifically policy changes to
capital controls. Only two weeks into 2017, China
released specific points regarding limitations on
transfers and guidelines for moving capital
overseas. This is likely to result in capital remaining
inside of China. RIF believes that pressure from the
new presidential administration can speed up or
exacerbate certain Chinese risks that may spill over
into equity markets. Because of this, we still see
some opportunity in select fixed income markets
that hedge out the discussed risks.
Monetary Policy The Fed is driving a divergence in
policy across the globe. While other central banks
remain stalwart in continuing dovish policies, the
Fed has begun to raise interest rates. Whether the
Fed will continue to hike interest rates is another
question entirely. The Fed outlook for 2017 will be
dominated not by questions of if they will hike, but
how quickly they will hike. President-Elect Trump
and his audacious economic plans have caused
worry of an inflation overshoot among the FOMC.
The Fed Dot-Plot has been raised to reflect more
frequent interest rate hikes. The situation remains
highly fluid due to Trump and a changing FOMC
board.
Conclusion Our 2017 initial rebalance holds fixed
income in a lesser proportion to equities. We have
selected specific equities that we believe offer
favorable risk/reward outcomes and have tried to
avoid overcrowded names in case of a correction.
RIF has allocated a small portion to Australian
bonds and Japanese yen that reduces our
correlation from our initial large holding in U.S.
long duration treasuries.
Managing Members
Steven Todd Faculty Advisor
Steven Todd is an Associate Professor of Finance at the Quinlan School of Business.
Dr. Todd completed his Ph.D. in finance and business economics at the University
of Washington in Seattle; he also holds a B.S. degree in Operations Research from
Cornell University. Dr. Todd currently serves as Associate Dean for Faculty and
Research at the Quinlan School of Business. He has also served as the Finance
Department Chairperson and the Director of the Master of Science in Finance
Program. Prior to his academic career, Steven Todd worked on Wall Street as an
analyst, investment banker and portfolio manager at Merrill Lynch and UBS
Securities. He also served as a Director in the CDO Research Group at Wachovia
Securities (now Wells Fargo) in the years leading up to the financial crisis.
Richard Osty Fixed Income, Currency, Commodities - Investment Committee

Richard is a senior studying finance and Asian studies. He has been on
the investment committee for three years. Prior work experience includes internships
with Merrill Lynch, Guggenheim Partners, and JP Morgan. Richard is also a member of
the Sigma Chi Chapter at Loyola, Lambda Nu. Additional interests include:
traveling and watersports.
Franklin Angevine Fixed Income, Currency, Commodities - Investment Committee

Franklin is a junior studying finance and history. He has been a member of
the investment committee for two years. In addition to his participation in the Rambler
Investment Fund, Franklin is currently interning at DSC Quantitative Group
in Chicago. Prior work experience includes financial research at the Quinlan School of
Business. Additional interests include: sailing, hiking, motorsports, and coding using
R-Studio.
Andrew Hadley Equities , Commodities - Investment Committee

Andrew is a senior studying finance and economics. He has been on the investment
committee for two years. Prior work experience includes internships with Aramark,
Southwest Airlines, and Guggenheim Partners. Andrew is also a player for the Loyola
Mens Ice Hockey team as well as the club golf team. Additional interests include:
camping, hiking, tennis, and sailing.
Guggenheim CurrencyShare Japanese Yen Trust (FXY)

Alternative ETF | Currency
Recommendation: BUY
Equity Characteristics
Price
$83.70
Average Volume 1 Month
202,088.00
Market Cap (Mil)
$83.69
Dividend Frequency
N/A
12m Yield
N/A
Total Return 1 Year
4.60%
Total Return 1 Month
-7.19%
Total Return 6 Months
-8.07%
Expense Ratio
.400%
Time Horizon | 1 year

Price: $81.95
Price Objective: $95.00
December 21, 2016
Investment Thesis
The Yen is a currency that is exposed to many systematic factors and can therefore
benefit from many systematic risks. It is widely viewed as a safe-haven asset and
can be resilient against a stronger dollar. The underlying factors that influence its
price are the Bank of Japan, global growth, and the strength of the dollar. The
main reasons for investing in Yen are to benefit from quantitative failure in
Japan, Japans economic outlook, Trumps inability to spark inflation, and weak
global growth & increased turmoil. The risk inherent in the Yen poses a threat to
the investment but the probabilities of them are low. A major benefit of the Yen is
it provides low correlation to the systematic factors currently most powerful in the
market. Allocating 10% of the portfolio would provide protection from the
downside without the negative carry of other safe haven assets such as gold. Thus,
I initiate a buy recommendation of FXY.
Description
CurrencyShares Japanese Yen Trust is an exchange-traded fund incorporated in the
USA. The Fund's objective is to reflect Yen in Dollar.
Kuroda and the Bank of Japan

The economic outlook for Japan remains bleak despite their radical monetary and fiscal policies. Inflation and GDP
growth continue to be anemic, although there has been a re-inflation in recent months. The failure of these policies has
left the BOJ and its head, Haruhiko Kuroda, reconsidering their policies. Their most recent experiment was the
implementation of a yield curve manipulation policy where the BOJ uses targeted purchases to steepen the yield curve
by selling longer maturities and purchasing shorter maturities. The announcement of this policy was broadly met with
disappointment as many expected another rate cut into the negative. It signaled the BOJ has reached the limits of its
power, short of Helicopter Money. The BOJ has effectively started tapering its radical monetary policies. The recent
rally in inflation expectations across the globe should also embolden Kurodas stance on tapering.
On the Curve
The sovereign yield curve of Japan is quite interesting.
The short and medium maturities remain quite flat
while the long end is sharply higher. The higher rates
should be driving a stronger currency, but the dollar is
clouding this. The increase in real rates should not be
disregarded as it can be interpreted as the market
tapering for the BOJ. A continuation of the BOJs
yield curve policy will lead to higher rates, hence a
hawkish stance in contrast to their other policies. The
effect of this new policy is yet to be seen, but it is my
assumption that the increase in steepness of the curve
will drive the curve parallelly higher.
The Rambler Investment Fund | By Franklin Angevine
Page 1
Economic Charts
Page 2
A Look at the Japanese Situation

Japan is in a unique situation. Growth and inflation have eluded
it for close to a decade due to a series of crises. The
environment is favorable for a Yen investment. There are three
factors creating this environment: first is a declining population,
second is the macroeconomic conditions in Japan, and third is
the current level of the yen.
1. The IMF projects that by 2021, the population of Japan
will have decreased by -2.26%. The population is aging
without enough reproduction and or immigration to
offset deaths. This existential crisis weighs on aggregate
growth and inflation of Japan. This translates into a
long-term trend of a low growth and deflation regime
which would cause the Yen to strengthen.
2. The economics of Japan are strange which is partly
because it has been a test tube for monetary and fiscal
policies. Growth is low, but has been picking up again
after slipping into recession. This is because of a slight
re-inflation. In fact, inflation expectations have surged
in the last month primarily due to the hope in
Trumpnomics and the level of the Yen. Whether this
will translate into real inflation is yet to be seen. Retail
sales have been strengthening, but consumer confidence
has been declining. The fact is that even with negative
rate policies, the Japanese consumer does not want to
spend. This makes Kuroda less likely to deepen his
foray into negative rate territory. The QE programs and
fiscal stimulus have also failed to create substantial
growth. Although, as of last spring, a new fiscal
stimulus of $276B was launched. If it is anything like
previous plans, it will have little impact. The amount of
debt monetized to generate the current growth has been
astronomical.
3. The level of the Yen has a quite important effect on the
macroeconomic conditions of Japan, specifically on
inflation, company earnings, and consumer spending. A
weak Yen benefits inflation and companies that export
goods while adversely affecting the consumer. 115 is a
significant level for the yen as it will start to spur
inflation in imported goods, increasing the cost of living
across Japan. Policy will need to be reconsidered at that
point as inflation will be generated on a large scale. The
consumer could shock the economy by becoming even
thriftier as household consumption makes up 68% of
Japans GDP. Thus, the benefits to manufacturers will
be eliminated by the pull back in consumption.
Page 3
Failure of a Trump Stimulus

The inflationary environment of the United States since the recession of 2008 has been quite weak. The Federal
Reserve has tried everything to spur inflation, but with little success due to a waning global economic growth cycle.
The largest potential catalyst of inflation is the implementation of fiscal stimulus. President-Elect Trump is attempting
to accomplish this in the form of a $100 billion plus a year infrastructure spending plan. The possibility of a large scale
plan happening is low. Trump faces four headwinds:
1. Republican Congress dissent: Fiscal hawks could dissent and prevent a full stimulus package
a. American Recovery and Investment Act, Republicans limited down to $60B a year plan
2. Inability to monetize debt with large interest rate moves because the appetite for US debt is currently low
(Exhibits 8 & 9)
a. Chinese and Saudis liquidating reserves
b. Strong dollar limits purchasing power
c. Treasuries would sell at a discount in rising rate environment, translating into less monetization
3. Construction labor force shortage and Poor Execution
a. Skilled labor is hard to find (NAHB Survey)
b. Further exasperated by Trump immigration policies
c. Poor execution by administration of infrastructure plan could render the stimulus moot. There is no plan
currently in place outlining how spending would be allocated
4. Corporate Reluctance
a. A major portion of the infrastructure plan hinges on a repatriation of corporate profits held abroad
b. Reduction of tax from 30% to 15% is not enough of an incentive when companies can tap Eurodollar
financing
c. The success of the infrastructure plan is based on private investment by corporations that will be
incentivized through tax breaks
It will only take one of these headwinds to reduce the probability of successful fiscal stimulus. Another consideration
is the time it would take for the stimulus to be launched. It is at least two years away as it still must go through
concrete planning and Congress. This is not even to mention the time it will take to mobilize. The outcome of a failure
would be a reverse in all the gains by the Dollar. The Yen stands to benefit from this. Even if the stimulus is passed,
history shows poorly implemented infrastructure spending has minimal effects on growth. An example of this is Japan,
where comprehensive fiscal stimulus since 2012 has had little effect.
Page 4
King Dollar
The Dollar has been appreciating against all other G7
currencies due to the facts laid out in the previous section.
The Dollar has become more important than the inflation and
rate fundamentals in currency exchange rates. The moment
the Dollar pulls back because of a Trump failure or a
deleveraging of Dollar debt, the Yen and the other major G7
pairs could appreciate past levels seen on election night. A
strong Dollar will be a drag on multinational companies and
those that trade outside the US. If the Dollar continues at this
level, it could be a serious drag on profit margins of the
largest companies. Considering how weak GAAP earnings
multiples currently are, this could bode ill for the US
economy.
Weak Global Growth and Turmoil

The two major existential threats in the global economy are a collapse in China and a disintegration of the Euro-Zone.
Chinas problems have not magically evaporated. The rate at which China is devaluing the Yuan and instituting
capital controls suggests something is going very wrong. China makes up a large component of global growth so
any issue could cause problems elsewhere because of the global economics.
The Euro-Zone is now the sick man of the global system. Month by month, the continuation of this system is
looking less likely due to the rise of populism and nationalism. The latest blow was the Italian constitutional
referendum which has forced a change in government. Many believe this is the first step in path for Italy to exit
the EU and if Italy leaves, it could be the end of the system. The outlook remains very bleak. The next event in
this drama will be the elections in Germany and France. If the rightwing populists win, it would be another signal
the end of the system is near; at least in its current form.
Holding Characteristics
The Yen is currently at a low against the Dollar. Looking
at the five-year price history, the Yen has a lot of room to
appreciate against the Dollar. The recent sell off in the
Yen has been quite quick and over-done. FXY reflects the
inverse of the USD/JPY. It is the amount of Yen per
dollar. If the Yen were to reverse its steep, Trump-caused
decline, there would be a significant return. The ETF itself
charges an expense ratio of 40bps which is acceptable for
the alternative nature of the ETF. There is no leverage or
derivatives in the ETFs holdings.
Volatility
The historical 30-day trailing volatility on FXY over the
last four years has remained between levels of 19.54% and
3.94%. Understandably, the Yen can be quite volatile, but
this is not necessarily a bad thing. Correlations must be
examined to make a determination. The Yen is very
different than other currencies in its levels of correlation
to other assets.
Page 5
Fixed Income Correlations
BBDXY: Dollar Index: The correlation between the broader Dollar is very significant. The regimes imbedded in
the Yen can move it from being very correlated to very uncorrelated in relation to BBDXY. The total period
correlation is 59.18%
TSY: 10 Year Treasury Futures: The relationship between treasuries are negatively correlated. This should confirm
the Yens place as a safe-haven. The average correlation over this period is -50.07%
Equity Correlations
ES1 and RTY: S&P E-Mini Futures & the Russell 2k: Equities and the Yen present an interesting relationship. The
Yen can appreciate when equities are moving higher. The case for this relationship is shown in the period between
9/1 and today. The Yen can provide dynamic hedging against equity markets, meaning markets could move higher
and the Yen could appreciate. The average correlations over this period for ES is 37.78% and for RTY 36.65%.
Conclusion: Why Invest in the Yen?
Tapering and quantitative failure in Japan

Re-inflation in Japan due to depreciating Yen
Higher rates, Japanese Sovereign Curve
Failure of Trump to monetize or launch an
infrastructure plan
Continued weakness in China and Europe will
hamper global growth
Beneficial correlations to different markets
Risks
Further easing by Bank of Japan

Broad success of new fiscal stimulus in Japan
Japan solves its demographic problems
Global re-inflation and growth spurred by Trump
Euro-Zone stabilizes
China successfully implements a shift to a servicebased economy and returns to high levels of growth
Page 6
WisdomTree Australia and New Zealand Debt Fund

Fixed Income | Sovereign
December 21, 2016
Medium/Long Term | 1 year+

Recommendation: Buy
Investment Thesis
YTD Performance of AUNZ, AGG, ASX 200
($100 Investment)
115
110
105
Fund- The WisdomTree Australia & New Zealand Debt

Fund is an actively managed debt fund that primarily invests
in sovereign debt securities. The fund seeks a high level of
total return consisting of both income and capital
appreciation.
100
95
90
AUNZ
Catalysts:
.
Thesis- Throughout this investment report, we consider a

variety of fundamental and technical factors that provide
favorable medium to long-term return catalysts for
Australian Sovereign Bonds. The underlying risk for this
trade is the recent development of rising yields and global
inflation expectations.
AGG
ASX 200
RIF Portfolio- AUNZ provides global diversification to the

portfolio and will appreciate on falling Australian/New
Zealand sovereign bond yields. Because the securities are
denominated in AUD, we recommend a hedge by shorting
FXA which immunizes AUD FX risk.
Catalysts & Risks
Australian consumers are over levered with weak earnings (Pg. 4)

Australian exports are concentrated towards China which puts a ceiling on inflation and real
yields (Pg. 4-5 & Pg. 8)
Reserve Bank of Australia (RBA) should see signals to increase the effective interest rate (Pg. 3)
In the short term, we believe that bonds are oversold on a technical basis (Pg. 9)
Within the next quarter we believe that yields will be oversold on a fundamental basis due to further
deterioration in economic indicators
China is a large catalyst, any further addition of capital controls can have negative effects on Australian
home prices
Risks:
Short term central bank tightening stimulus policies push yields higher (Pg. 2)
China, the largest holder of US sovereign bonds continues to sell US Treasuries pushing yields
higher
A further jawboning of inflation expectations could push yields up regardless of fundamentals
Recommendation: Within the next 1-2 months, we recommend seeking an entry point in AUNZ,
especially if there are signs of global yield deterioration or a lack of inflation with respect to copper,
gasoline prices, or inflation swaps. We consider these leading indicators of inflation expectations.
The Rambler Investment Fund | By Richard X. Osty and William L. Hilton
Page 1
Monetary Policy
ECB Balance Sheet
5.00%
3.00%
1.00%
1.00%
5.00%
12/21/2015
12/21/2014
12/21/2013
12/21/2012
12/21/2011
12/21/2010
12/21/2009
12/21/2008
12/21/2007
12/21/2006
12/21/2005
12/21/2004
12/21/2003
12/21/2002
3.00%
12/21/2001
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
ECB With Mario Draghis steady easing

program, yields in the Eurozone should remain
tight with inflation below ECB targets. Matteo
Renzis departure will magnify an uneasy
sentiment in the Eurozone and force
policymakers to heavily monitor political risk
and the falling euro. Implications for global
bond yields, therefore, will remain bleak as
confidence in the European economy remains
largely unseen.
ECB Balance Sheet All Assets (Bils)

12 per. Mov. Avg. (%CHG)
BOJ Balance Sheet
12/10/2015
12/10/2014
12/10/2013
12/10/2012
5.00%
12/10/2011
12/10/2010
3.00%
12/10/2009
100,000
12/10/2008
1.00%
12/10/2007
200,000
12/10/2006
1.00%
12/10/2005
300,000
12/10/2004
3.00%
12/10/2003
400,000
12/10/2002
5.00%
12/10/2001
500,000
Bank of Japan assets:Total G1(Bils)
BOJ The Bank of Japans loose monetary

policy reflects a struggle to achieve price
stability. With a target CPI YoY rate of change
of 2%, Haruhiko Kuroda maintains that the BOJ
will continue its bond buyback program in
order to meet this target. The Japanese central
bank faces an aging population and declining
birth rates, and will continue to provide
stimulus for the nations economy. This will put
downward pressure on yields in the years to
come.
12 per. Mov. Avg. (%CHG)
FED Balance Sheet
12/12/2015
12/12/2014
12/12/2013
12/12/2012
5.00%
12/12/2011
12/12/2010
3.00%
12/12/2009
1,000,000
12/12/2008
1.00%
12/12/2007
2,000,000
12/12/2006
1.00%
12/12/2005
3,000,000
12/12/2004
3.00%
12/12/2003
4,000,000
12/12/2002
5.00%
12/12/2001
5,000,000
FED With Donald Trumps proposed policies

of heavy government stimulus and lower
taxation, the probability of subsequent rate
hikes increases as the economy picks up
momentum. These sentiments have been
over-exaggerated in the short term as the US
economy teeters along on sub-optimal
fundamentals. As a result, we believe that US
10yr treasuries are oversold and reflect
investor panic due to the unprecedented
outcome of the election.
US Federal Reserve Balance Sheet

(Mils)
Page 2
Australias Economy
AUNAGDPC Index
NZNTGDPC Index
Linear (AUNAGDPC Index)
Linear (NZNTGDPC Index)
9/1/2016
3/1/2016
6/1/2016
9/1/2015
12/1/2015
6/1/2015
3/1/2015
9/1/2014
12/1/2014
6/1/2014
3/1/2014
9/1/2013
12/1/2013
6/1/2013
3/1/2013
9/1/2012
12/1/2012
6/1/2012
3/1/2012
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
0.2
12/1/2011
Aussie GDP % Growth QoQ vs. Kiwi GDP % Growth QoQ
Aussie/Kiwi CPI YoY (%)

6
5
4
3
2
AUCPIYOY Index
ShortTerm Hawks
Inflation Expectations
Pressure on China
Debt Monotization
Primary Effects
3/1/2016
6/1/2015
9/1/2014
12/1/2013
3/1/2013
6/1/2012
9/1/2011
12/1/2010
3/1/2010
6/1/2009
9/1/2008
12/1/2007
3/1/2007
6/1/2006
9/1/2005
12/1/2004
3/1/2004
6/1/2003
9/1/2002
12/1/2001
NZCPIYOY Index
Secondary Effects
Falling CNY
(Strenghting AUD/CNY)
Falling Global yields
(Monetization of
Trump's fiscal stimulus
package)
GDP Growth - Australian GDP growth has

consistently fluctuated between 0.4% and
1% on a quarterly basis between Q4 2011
and Q2 2016. During the same time, New
Zealand GDP showed a slightly higher
growth trend, averaging to 0.8% on a
quarterly basis. With other major
economies (US, Europe, China)
experiencing sluggish growth, Australia
and New Zealand stand out with above
average growth levels. Later, we will discuss
growth trends and the drivers of
GDP in Australia.
Disinflation Disinflationary pressure in

New Zealand and Australia will be
favorable for sovereign debt. This has
been the case for Australia and New
Zealand for the past two years. However,
according to the Australian Bureau of
Statistics, the most recent spike in prices
over the last quarter stem from fruit
(+19.5%), vegetables (+5.9%), electricity
(+5.4%) and tobacco (+2.3%). This was
largely due to adverse weather conditions
which significantly impacted supply chains.
Should price stability continue in the
Oceanic region, bond yields will remain
subdued.
Risk off
Instable housing
markets
Pullback in Chinese
demand
Catalysts for Falling

AUD Yields
Page 3
Australian Consumer
Debt to Income Per Capita
4.0%
3.0%
2.0%
1.0%
0.0%
2.0%
2/1/2016
4/1/2015
6/1/2014
8/1/2013
10/1/2012
2/1/2011
12/1/2011
4/1/2010
6/1/2009
8/1/2008
10/1/2007
2/1/2006
12/1/2006
4/1/2005
6/1/2004
8/1/2003
10/1/2002
1.0%
12/1/2001
200
180
160
140
120
100
80
60
40
20
0
Australia Debt to Income (Left)

% Change (Right)
Consumer Income Growth Rate (%)

4.0%
Debt to Income -Australian consumers have

a debt to income ratio of 1.8 (up from 1.71 in
2008). For every dollar of income, the
consumer bears the weight of 1.86 dollars of
debt. This is a relatively high multiple relative to
other developed countries. For example, the
ratio in the United States is 1.03 (down from
1.30 in 2008) and in the United Kingdom, the
ratio stands at 1.40 (down from 1.60 in 2008).
While we are not suggesting Australia will have
a financial collapse in the near future, it is fair
to say that consumers as a whole possess a
greater ratio of debt to income.
3.0%
2.0%
1.0%
0.0%
6/1/2016
9/1/2015
12/1/2014
3/1/2014
6/1/2013
9/1/2012
3/1/2011
12/1/2011
6/1/2010
9/1/2009
12/1/2008
3/1/2008
6/1/2007
9/1/2006
12/1/2005
3/1/2005
6/1/2004
9/1/2003
12/1/2002
3/1/2002
1.0%
2.0%
In this section we discuss three economic

factors that reflect a weaker Australian
consumer which will put pressure on RBA and
policy makers to maintain, if not cut, Australias
effective cash rate of 1.5%. The cash rate is
comparable to the effective fed funds rate of
.5% as of December 10, 2016.
Wage Disinflation - From 2010 to 2016,

wages in Australia have been in a
disinflationary period. While wages have not
seen negative growth, the growth rate is
growing at a continuously slower pace. In
March 2016, wage inflation for the private and
public sector were 1.9% and 2.4%, respectively.
In conclusion, while Australias economy does
not appear on the midst of a recession, the
consumer is over-levered and will have lower
levels of disposable income to contribute to
Australias services sector. This may hinder
expectations of GDP growth and offers support
for stagnant or possibly declining rates and
inflation. In subsequent sections, we will discuss
external factors that could push Aussie yields
higher.
Page 4
Australias Housing Market

Rising Housing Prices- A large driver of
consumption in developed economies can result
from increases in housing prices. Rising prices
support consumer spending and confidence and
encourage economic growth due to new
construction developments. Since 2008, Australia
has seen robust growth in residential properties.
A large driver of growth can be attributed to
foreign demand as shown below:
Q2 2014
o 7.3% of existing homes
o 16.8% of new homes
Q1 2016
o 7.2% of existing homes
o 12% of new homes
Australia Home Price Index YoY %CHG

3/2003 6/2016
25
20
15
10
5
0
1/1/2016
6/1/2015
4/1/2014
11/1/2014
9/1/2013
2/1/2013
7/1/2012
5/1/2011
12/1/2011
3/1/2010
10/1/2010
8/1/2009
1/1/2009
6/1/2008
4/1/2007
11/1/2007
9/1/2006
2/1/2006
7/1/2005
5/1/2004
12/1/2004
3/1/2003
10
10/1/2003
While we do not have specific information on

Chinese home buying statistics, Westpac
Banking Corp. made an announcement earlier in
the year stating they would not accept
applications from non-residents, self-employed
foreigners and temporary visa holders as of
4/26/2016. Westpac Banking Corp. is a large
issuer of Australian mortgages and we view
them as a benchmark for the sentiment towards
Australian mortgages.
Australia Building Approvals (Existing and New

Construction) MoM %CHG
80.00%
60.00%
40.00%
20.00%
0.00%
3/1/2016
6/1/2015
9/1/2014
12/1/2013
3/1/2013
6/1/2012
9/1/2011
3/1/2010
12/1/2010
6/1/2009
9/1/2008
12/1/2007
3/1/2007
6/1/2006
9/1/2005
12/1/2004
3/1/2004
6/1/2003
9/1/2002
40.00%
12/1/2001
20.00%
Page 5
Australian Exports
Australias Economy: Supplying Metals to China
Metals- Australias GDP has grown increasingly
reliant on metal exports. From 2001 to 2015, the
percentage contribution of metal ore and
minerals to exports has increased from 15% to
40%. This reliance on metal ore and minerals
exposes the economy to fluctuating prices and
shifting demand from foreign countries.
4/1/2015
12/1/2015
8/1/2014
4/1/2013
12/1/2013
Metal Ore and Minerals Percent of Exports
Australia Primary Industries Contribution to Real

GDP
(Real Value of Inustry/Real GDP)
Mining
14%
12%
Manu facturing
10%
8%
Finan cial
Services and
Insurance
Services
Const ru ction
12/1/2015
Australia Coal Exports to China (Volume)
Coal
12 Month Avg % CHG
Iron
7/1/2016
9/1/2014
8/1/2015
10/1/2013
11/1/2012
12/1/2011
2/1/2010
1/1/2011
3/1/2009
4/1/2008
5/1/2007
20.00%
7/1/2005
6/1/2006
1,000
11/1/2001
10.00%
12/1/2015
2000000
12/1/2014
2,000
12/1/2013
0.00%
12/1/2012
4000000
12/1/2011
3,000
12/1/2010
10.00%
12/1/2009
6000000
12/1/2008
4,000
12/1/2007
20.00%
12/1/2006
8000000
12/1/2005
5,000
12/1/2004
30.00%
12/1/2003
10000000
12/1/2002
6,000
12/1/2001
40.00%
12/1/2000
12000000
12/1/2000
Australia Iron Exports to China (Volume)
8/1/2004
12/1/2014
12/1/2013
12/1/2012
12/1/2011
12/1/2010
12/1/2009
12/1/2008
12/1/2007
12/1/2006
12/1/2005
12/1/2004
12/1/2003
12/1/2002
4%
12/1/2001
6%
The figures below represent total coal and iron

ore exports to China. In 2008, China began to pull
back on importing iron and coal from Australia.
Australias increasing reliance on mining and
Chinas falling demand for metals pose a threat to
the Australian economy. Capital will accordingly
flow to less risky assets as investor sentiment
remains uncertain.
9/1/2003
16%
Chinese Demand- Mining, manufacturing,

financial services, and construction represent the
largest sectors contributing to Australian GDP.
China represents the majority of demand for
Australian goods and services. This means that
any pullback in these sectors could cause markets
to become volatile. The implications for yields
remain bearish with adverse movements in
commodities prices.
10/1/2002
8/1/2012
4/1/2011
12/1/2011
8/1/2010
4/1/2009
12/1/2009
8/1/2008
4/1/2007
12/1/2007
8/1/2006
4/1/2005
12/1/2005
8/1/2004
4/1/2003
12/1/2003
8/1/2002
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
12/1/2001
% of Exports Contribution
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2.00%
4.00%
6.00%
12 Month Avg % CHG
Page 6
Chinas Economy
China Real GDP (%)
2/1/2015
10
8
6
4
2
0
2
4
12/1/2015
4/1/2014
6/1/2013
8/1/2012
10/1/2011
2/1/2010
12/1/2010
4/1/2009
6/1/2008
8/1/2007
10/1/2006
2/1/2005
12/1/2005
4/1/2004
6/1/2003
8/1/2002
10/1/2001
16
14
12
10
8
6
4
2
0
12/1/2000
China Real GDP and Headline CPI

YoY (%)
China CPI
China Retail Sales Value YoY (%)

25
20
15
AUDCNY XRATE
6
5.8
5.6
5.4
5.2
5
4.8
4.6
4.4
4.2
4
1/1/2014
1/1/2015
5/1/2016
10/1/2016
12/1/2015
7/1/2015
2/1/2015
9/1/2014
4/1/2014
6/1/2013
11/1/2013
1/1/2013
8/1/2012
3/1/2012
10/1/2011
5/1/2011
12/1/2010
7/1/2010
2/1/2010
9/1/2009
4/1/2009
11/1/2008
6/1/2008
1/1/2008
10
China Real GDP and Headline CPI Chinas

slowdown is not new within economic
developments. However, given the new
presidency, Chinas high levels of debt, and a
general slowing of the velocity of money, we
expect continued pressure on Chinas GDP.
Chinas Prime Minister Li Keqiang announced a
GDP growth target of 6.5% to 7% for 2016. With
plans for fiscal stimulus, the prime minister
expects to provide tax cuts to private firms while
running at a deficit. Given the oversupply of coal
and steel, however, two million workers are
expected to be laid off. Our outlook remains
conservative until the country goes through a
deleveraging process or strong economic and/or
political change which could spur additional
growth.
China Retail Sales While still growing at an
annualized rate of 10%, it is unlikely that China
would enter a recession because of the Chinese
consumer. However, it is necessary to note that
this rate of growth is falling and if China hopes to
shift from an industrial nation to a consumer and
service driven economy, we would like to see
more robust growth from retail sales and
consumer indicators.
AUD/CNY While most of the focus in the FX
market goes to pairs weighted with the USD, the
AUD is gaining strength compared to Australias
primary trading partners China and Japan. A
further strengthening of the AUD over CNY and
JPY would put more downward pressure on trade
between Australia and its primary trading
partners. This may lead to additional pressure on
GDP growth and the future path of interest rates.
1/1/2016
Page 7
China: Base Metal Demand, Headline CPI Correlation

Demand for Steel and Base Metals While
the overall sentiment is that China is slowing
and will have reduced demand for base metals,
we wanted to go a step further and identify
specific industries that demand steel and base
metals. Steel is an important industrial metal
when talking about iron because iron ore is
used in the process to make steel bars, beams,
etc.
12/1/2015
12/1/2013
12/1/2014
12/1/2012
12/1/2011
12/1/2010
12/1/2009
12/1/2008
12/1/2007
12/1/2006
12/1/2005
12/1/2003
12/1/2004
12/1/2001
12/1/2002
140
120
100
80
60
40
20
0
20
40
60
12/1/2000
China Fixed Assets Investment YoY (%)
Commercial and Passanger Vehicle Production

12%
8%
4%
Fixed Assets Investment YOY China has

been focused on heavy industrial development
and fixed asset investment which has
contributed to the majority of Chinas growth
over the last two decades. Industries included
in this indicator are Civil Engineering Projects,
Infrastructure, and SOE Real Estate Investment.
Many of these projects act as a use of steel and
iron ore.
0%
Commercial 12M %CHG
8/1/2016
2/1/2016
8/1/2015
2/1/2015
8/1/2014
2/1/2014
8/1/2013
2/1/2013
8/1/2012
2/1/2012
8/1/2011
2/1/2011
8/1/2010
2/1/2010
8/1/2009
2/1/2009
8/1/2008
2/1/2008
8/1/2007
2/1/2007
8/1/2006
8%
2/1/2006
4%
Passanger 12M %CHG
Quarterly Headline CPI Correlation

Computing a correlation between Australia and
China confirms our hypothesis that both of
these nations have been dependent on one
another over the last decade and have grown
increasingly more dependent in the last two
years. We believe Australias GDP growth and
inflation expectations are heavily dependent on
the health of Chinas economy.
3/1/2016
6/1/2015
9/1/2014
3/1/2013
12/1/2013
6/1/2012
9/1/2011
12/1/2010
3/1/2010
6/1/2009
9/1/2008
12/1/2007
3/1/2007
6/1/2006
9/1/2005
3/1/2004
12/1/2004
6/1/2003
9/1/2002
12/1/2001
Quarterly Headline CPI Correlation China and

Australia (Trailing 4 Quarters)
1
0.8
0.6
0.4
0.2
0
0.2
0.4
0.6
0.8
1
Commercial and Passenger Vehicle

Production While this sector does not
demand the same quantities of base metals,
the automotive sector is another slowing sector
that has recently shown negative growth as of
the beginning of 2016.
Yearly Correlation (Quarters)
Page 8
Global Yields
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Average 30 Day Correlation AUNZ and Bloomberg Dollar

Spot Index
Average 30-Day Correlations This first

correlation is evidence of a current
divergence between US and Australian
yields. While both yields rose going into
the election and have continued rising
post-election, there has been a divergence
in the correlation. This is evidence of the
different set of fundamental factors that
are driving yields in Australia vs US. Next,
the Bloomberg dollar spot index is an
index of the G10 currencies trade weighted
against the dollar. It is a useful metric when
comparing dollar strength with other
variables. The average correlation is still
negative but becoming increasingly
positive between AUNZ and the US dollar.
Global Yields When comparing 10Y
yields among G10 countries, New Zealand
and Australia both have the highest
nominal rates of 2%. With a hawkish US
federal reserve, we believe that if investors
are seeking higher yielding sovereign debt,
they will be repositioning to long duration
Australian and New Zealand bonds. Weak
economic fundamentals combined with
their concentrated exposure to metals and
China leads us to believe that the RBA has
little room to be hawkish.
Page 9
Technical Analysis & Trade Implementation

30 Day RSI Australian 10Y
75
65
55
45
35
25
Overbought
RSI (30) on Close (GACGB10)
Oversold
Norm. Dist. of Australia 10Y Yield Returns (11/2014

12/2016)
Standard Deviations From Mean
11/9/2016
5.17
4
2
0
2
4
6/24/2016
4.98
6/10/2014 12/27/2014 7/15/2015 1/31/2016
Standardize
8/18/2016 3/6/2017
Max Deviation
Min Deviation
$40,000 Long AUNZ hedged with $40,000 Short FXA Net

P&L
$3,000
14%
$2,500
12%
10%
$2,000
8%
$1,500
6%
$1,000
4%
Net Profit
12/5/2016
11/5/2016
10/5/2016
9/5/2016
8/5/2016
7/5/2016
6/5/2016
5/5/2016
4/5/2016
3/5/2016
0%
2/5/2016
2%
1/5/2016
$500
30 Day Standard Deviation
30 Day RSI (Australian 10Y) The relative

strength index (RSI) is a useful indicator of the
momentum in financial asset price movement. We
use a 30-day trailing RSI with the Australian 10Y
yield to gauge how strong or weak market
movements are. The calculation accounts for the
average gain of up periods versus average loss
of down periods. Because bonds move inversely
to their benchmark yields, the overbought and
oversold horizons have been flipped. This
indicator shows that Australian 10Y bonds are
nearing an oversold regime.
Normal Distribution of Daily Returns,
Australia 10Y yields The day following the US
Presidential Election led to a five standard
deviation move when using two years of daily
returns from the Australia 10Y. This significant
value may be considered an outlier but it reflects
the markets expectations of global inflation
picking up. In the short term (three months), we
believe that more moves like this are probable
due to Trumps inauguration and favorable
lagging economic data coming into the end of
2016. Starting in January, we will closely monitor
these statistical metrics to determine if there is a
regime change or if the market starts to call the
bluff on the current global inflation expectations.
The Trade Our final trade recommendation is
scaling into AUNZ as a long position and shorting
FXA (Australian dollars) to hedge the implicit AUD
within AUNZ. The purpose of this hedge is to
protect from the potential depreciation of the
Australian dollar if Australian Yields are falling.
Our goal is capture positive roll yield irrespective
of AUD currency changes.
Position Action Price
Hedge
12.17.16 Ratio
AUNZ
Long
17.29
FXA
Short
73.00
Page 10
Antero Resources (AR)

Equity | Energy, Oil and Natural Gas Exploration and Production
Recommendation: BUY
Time Horizon | 15 Months

Price: $24.62
December 21, 2016
Investment Thesis
Equity Characteristics
Avg 1 Day Volume: 3,389,899
Market Cap: 8,330M
Dividend Yield: N/A
YTD Yield: 22.57%
Total Return 1 Year: 37.52%
Total Return 1 Month: 8.71%
Total Return 6 Months:-5.72%
P/E Ratio: 52.6
I initiate a BUY recommendation on Antero Resources (AR) with a price

target of $38 by taking the average of my range of $36-$40, which were
derived from altering the Bloomberg DCF model based on historical trends
and future guidance along with a Comparables Valuation. Antero is well
positioned to benefit in the short and long term as the company will continue
to increase revenue as Natural Gas (NG1) and Natural Gas Liquid (NGLs)
commodity prices go down. Effective cost-cutting measures have been taken
to weather the recently low commodity prices of NG1 and NGLs which
allowed Antero to produce a profit in FY 2015 along with Q1 and Q2 2016.
Future demand for Natural Gas looks promising as it encompasses many
economic and environmental benefits which will benefit AR going forward.
Short Term
Weather and Demand - ARs revenue is heavily dependent on NG1 and
NGL commodity prices. Due to high volatility, AR has committed to long term
futures contracts to protect against down-side risk. ARs stock price will
increase significantly based on the weather conditions this year as NG1 is used
for heating and cooling in the Residential, Industrial, Electric Power, and
Commercial Sectors. Short term demand for NG1 comes from cold weather in
the winter time and hot temperatures the summer.
Long Term
Acquisitions and Exportation - Long term revenue will continue to
grow if AR keeps a significant hedge premium on sales of NG1 and NGL. AR
continues to add to its significant acreage position in the Appalachia Basin
area and will develop wells and drilling points in the near future. By Q2
2017, AR hopes to begin exporting NGL to Europe. Their two most
produced NGLs (Ethane and Propane) sold to international buyers are
projected to increase $0.16/gal and $0.18/gal, respectively. Exporting NG1
and NGL is a new market and AR looks to become one of the bigger
exporters on this particular type of energy.
Company Description
Antero Resources (AR) is a small to mid-market Natural Gas production and
exploration company that went public on the NYSE in October, 2013. Based
in Denver, AR currently operates its rigs in the Marcellus and Utica Shales,
located in the Appalachian Basin. Their principal operations are fracking for
Natural Gas and Natural Gas Liquids (NGLs) which involve Ethane and
Propane, Water, and Oil. As commodity prices are highly volatile, AR has put
an emphasis on low cost, liquid-rich drilling to sustain profits while lowering
overall external costs. Currently, AR holds over 484,000 net acres in the
southwestern core of the Marcellus Shale and 145,000 net acres in the core of
the Utica Shale.
AR derives its revenue from the sale of energy products. AR sells the liquidsrich products either at the reasonable value of the NYMEX or at a hedged
price. For 2016, all of ARs Propane production was sold at a hedged price of
$0.59/gallon which was $0.22 above the 2016 average on the NYMEX.
Additionally, AR hedged Natural Gas sales at $3.91/ MMBtu with an average
$0.82/MMBtu premium on the NYMEX. After Natural Gas prices reached
record highs in 2014, the price of Natural Gas has been slowly declining which
has affected the revenue and financials of AR as well as industry competitors.
AR was forced to cut its capital expenditures budget by 50% from 2014 to
2016 to stay afloat. Through 2016, ARs hedged Natural Gas price was $3.91/
MMBtu with an average $0.82/MMBtu premium on the NYMEX.
Macroeconomic Environment
GDP, PMI: Real GDP growth and the NAPMPMI Index, or PMI, is a
leading macroeconomic indicator that measures industrial production
within the United States and is reported monthly. It is a leading indicator
for GDP as it influences whether GDP and the Industrial Sector will
experience growth over the next quarter. As of right now, PMI closed on
November 30 at 53.2 which marked the fourth straight month of a PMI
rating above 50. In the past 16 months, PMI has only closed below 50
once, which occurred on 12/31/15. Future industrial growth can be
predicted at any reading above 42 while successive months of plus-50
ratings will typically lead to growth in GDP. Look for Real GDP to grow
with in the next quarter as the past two months of PMI ratings have been
above 50, indicating economic growth. The growth rate of Real GDP has
increased significantly from its past two quarters which indicated a
decline in economic growth acceleration. Growth rates of 0.218% in
October 2015, 0.208% in January 2016 and 0.352% in April 2016 drew
many concerns as economic growth looked to be slowing down which
could eventually lead to a possible recession. However, a reported growth
0.780% in Q3 2016 suggests an increase in economic growth for quarters
to come. Expect Real GDP to grow at least 0.5% because historical data
suggests that after a quarter below 0.35%, Real GDP has typically grown
at a rate above 0.5% for two consecutive quarters.
The Rambler Investment Fund | By Avery Aylsworth
Page 2
Unemployment Rate: Unemployment rate has remained around 5% since August of 2015. The unemployment rate
of the post-recession era has been annually decreasing with an average decline of 1.61% from October 2009 where
unemployment hit a record high of 10%. The election of Trump will lead to a decreasing unemployment rate if not a
maintained rate of around 5%. A decrease in outsourcing jobs, displayed by the recent actions involving Carrier, displays
Trumps economic development plan. He plans to bring more jobs to America as well as prevent American jobs from
being outsourced. As unemployment declines, the resulting effect is an increased number of Americans in work force.
Moving from unemployment to a steady job will increase the flexibility of many previously unemployed peoples
finances. The ramification of this will be increased spending power on personal transportation and home improvements.
Regarding the oil and natural gas markets, declining unemployment bodes well for consumption as increased personal
financials will allows more people to heat and cool their homes in the winter and summer, respectively.
CPI: CPI rate of change on quarterly basis has flattened over the past three
quarters with increase of 0.1% from Q2 16, 1.0%, to Q3 16, 1.1%. Over the
next few quarters, look for inflation to steadily increase with a Q4 2016
growth of 1.7% from Q3. 2017 predictions show inflation growing at a
consistent rate of 2% over the next year. With Trumps election, I predict
inflation to grow at a more aggressive rate for the next four quarters. I predict
increased military capital expenditures will drive up inflation as many predict
Trump to improve the infrastructure of the military at a cost of $1 trillion.
Additionally, a rise in government subsidies to 1) bring outsourced jobs back
to America and 2) keep American jobs inside the United States will cause
inflation to increase at a more drastic rate than 2%. I believe that to fulfill his
promise of bring jobs back to the United States, Trump will subsidize those
companies to offset their previously low production costs overseas.
Industry Overview
NG1, Brent Crude: Natural Gas and Brent Crude have traditionally been substitutes of one another. Back in January
of 2016, Natural Gas hit a high of $2.472, a price not met again until June 2016, while Brent Crude hit a severe low of
$28.94. Historically, the two prices have been somewhat inversely correlated. However, as of early August, Natural Gas
Brent Crude prices have been moving in a correlated fashion. As of December 5, Brent Crude hit its yearly high of $54.46
while Natural Gas closed at $3.455, the second highest price of 2016. Trends like this can be used to predict Natural Gas
prices if the two commodities stay correlated. The EIA predicts Brent Crude to stay around $52 a barrel in 2017 which is
significantly higher than the average price of $44.32. Additionally, Trump is in favor of war against ISIS in the Middle
East which may potentially affect the United States OPEC relations. If Natural Gas prices stay correlated and OPEC
slows fuel exports to the United States, oil prices will increase along with Natural Gas prices. However, if Natural Gas
and oil become inversely correlated in 2017 and oil prices rise in the United States, anticipate a significant increase in
demand and price of Natural Gas as it will become the cheaper energy producer.
Page 3
Inventory: Inventory for Natural Gas is cyclical. Inventory typically peaks in November or December of each year and
begins to decline leading into the summer months, hitting a pit every March or April. Seen on the graph below, inventory
looks to just have reached its peak at 4,047 billion cubic feet (Bcf) on November 11. The next two weeks after that max
showed decreased inventory reserves of 4,045 Bcf on November 18 and 3,995 Bcf on November 25. The principals of
supply and demand can help determine a future increase in the Natural Gas prices. As the demand for Natural Gas reaches
its peak in the winter months, its supply, which reaches its max in the winter months, will begin to decrease as well.
Additionally, as natural gas reserves have been increasing in size, they have been growing at a slower rate than in the past.
This slow growth rate can be used to anticipate increased demand in the future as Natural Gas will be used for its
significantly fewer emissions of CO2 compared to Oil and Coal. These cyclical forces make it possible to predict an
increase in Natural Gas prices in the upcoming months.
Weather: Natural Gas commodity prices are heavily reliant on temperatures within the United States. Expect Natural
Gas prices to increase $1.00-$2.25 over December and into January and February. The graph on the page below displays
the historical trends and effects of temperature on Natural Gas commodity prices. As average temperature from 1000
weather stations across the Midwest and Northeast (1) increased from December to February over the years of 2013 to
2016, prices of Natural Gas have been steadily declining but are beginning to gain as winter comes again. In the winter of
2013/14, there was a polar vortex which severely dropped temperatures throughout the United States. Average
temperature for the 3-month period of December to February from 1000 weather stations across the United States was
17.87 F while the average Natural Gas prices was $3.94 with a high of $6.35. From December to February of 2014/15,
temperature averaged was 22.71 F while the average Natural Gas prices was $3.18 with a high of $3.75. In the winter of
2015/16, temperatures averaged 29.14 F as Natural Gas averaged a price of $2.13 and a high of $2.38 for the months of
December- February.
Page 4
https://www.ncdc.noaa.gov/climate-inform
Natural Gas Production: Natural Gas is composed of Shale Gas which is produced through hydraulic fracturing.
Shale Gas has seen a drastic increase in production that started June 2011 as it marked the first time there were 10
prominent shale areas producing natural gas. The two most consistent and prolific areas of natural gas production or the
Marcellus and Utica Shales. The Marcellus Shale is located in Pennsylvania (PA), West Virginia (WV), Ohio (OH) and
New York (NY) and produces 16.837 Bcf of natural gas a month. As of right now, NY is the only state out of the four that
has had dwindling production of Natural Gas due to its current political atmosphere. The Marcellus Shale propelled PA
into a Natural Gas producing leader, increasing its production of 200 Bcf in 2008 to 3,800 in 2014. New York heavily
depends on the power of Natural Gas as the state uses 1,300 Trillion British Thermal Units (Btu) a year, versus 615
Trillion Btu for oil-based gasoline. Look for New York to increase production of hydraulic fracking to satisfy energy
needs and to reduce costs of importation from other states. Additionally, the Utica Shale produces the second most
Natural Gas in the United States at 4.162 Bcf/month. It is also located in WV, PA, and OH and due to frackings
economic benefits, these states will very likely not change their stance on fracking and continue to increase their
production. Natural Gas on a yearly basis has been steadily increase from January 2006 going from 1,536 Bcf/ month to
2,159 Bcf/month in September 2016. As more energy needs are supplied by natural gas, look for demand to increase
along with the price of Natural Gas.
Page 5
Company Overview
Revenue Growth Driver: AR earns its revenue through four
sources, the largest being Crude Oil and Natural Gas exploration and
production. Gathering and Compression, 8%, Marketing, 6%, and
Freshwater Distribution, 6%, make up the other 20% of ARs Revenue.
Natural Gas Liquids (NGL) and Natural Gas sales makeup most the
operating revenue for products that are sold. Natural Gas sales composed
66% of operating revenue and NGL sales made up 17% of operating
revenue in 2015. In addition to this, AR saw experienced of $2.381 billion
in Commodity derivative fair value gains in 2015, a $1.513 billion
increase from 2014. It is worth noting that AR has a strong hedge position
on both Natural Gas and NGL. AR hedged 100% of its projected Propane
production for 2016 which makes up most NGL sales. AR hedged
Propane production at $0.59/gallon while the market high was $0.38 in
May and closed on 12/9/16 at $0.29. AR natural gas hedges are averaged
at $0.85Mbtu above the 9/30/16 strip pricing through 2019 resulting in a
$2.2billion mark-to-market benefit. Currently, AR is averaging $17.01/
Barrel of Oil Equivalent (BOE) on unhedged sales and $20.57/ BOE on
hedged sales while the BOE Natural Gas market price closed at $14.51 on
12/9/16. AR hedged 86% of its Natural Gas production through 2019 at
$3.72/ MMBtu 2019 which protects their downside if Natural Gas
commodity prices do not respond accordingly in 2016/17.
AR and NG1 Correlation: The stock price of AR has been correlated
YTD $100 Return

SPX
$
109.19
AR
$
116.82
AR Adjusted Beta
0.815
AR Raw Beta
0.867
AR R^2
0.057
with Natural Gas commodity prices since it went public in October 2013.
AR had an IPO of $44 and during the polar vortex winter of 2013/14, the
AR stock hit an all-time high of $65.67 as the prices and consumption hit
highs, as well as record highs and lows for temperature. After the 2013/14
winter, Natural Gas prices have been steadily decreasing, hitting a low of
$1.639 March 3, 2016. High winter temperatures directly affect the price of
Natural Gas which directly affects the price of ARs stock. The continual
drop in Natural Gas prices along with increase winter temperatures caused
the value of ARs stock to drop significantly to $19.12 in December of 2015
which was one of the warmest winters ever recorded. As climate change
continues to progress, more severe weather events will occur with increased
frequency creating more energy demand. Natural Gas is used for both
heating and cooling and in 2015, it was one of the cheapest forms of energy.
In 2015, for every million Btus consumed in the residential and commercial
sectors, Natural Gas was the cheapest at $10.73 and $8.95, respectively. It is
also the second cheapest form of energy (per million Btus) in the
Transportation and Electric Power sectors at $18.44 and $5.06 in 2015,
respectively. These low prices for Natural Gas use will drive up demand,
therefor increasing the Natural Gas Commodity price and eventually driving
up ARs revenue and stock price.
Page 6
Acreage Financials: ARs wells are positons in the two most

productive shales in North America. As of right now, AR is the leading
acreage holder in the Appalachia shale area. Currently, AR hold 565,000
net acres of Dry and Liquid-Rich gas. Of the rigs in the Liquid-Rich areas
of the Marcellus and Utica Shales, AR is running 36% of the rigs in the
area. AR has also reduced its external costs by reducing its drilling and
well completion costs in both the Marcellus and Utica Shales from $12.3
million Q4 2014 to $7.8 million Q3 2016 and $14.0 million Q4 2014 to
$9.1 million Q3 2016. Of its inventory, AR currently has 87% (4,234
locations) of its inventory classified as proved, probable, and possible (3P)
while only 11% of it is producing at year end 2015. Further estimates of
completed wells will set up on the other 2%. For 2016, AR is projecting a
20% growth in average net daily production (MMcfe/d) from 1,493
MMcfe/d in 2015 to 1,800 MMcfe/d estimated in 2016. Due to below
average natural gas prices, AR has had to cut its capital expenditures
budget to $1.4 million from $1.8 million in 2015 but is projected to still
grow 17% on the year. AR expects to grow revenue from $782.88 million
for Q3 2016 to $895.67 million in Q4 2017.
Company News
December 7, 2016 - Antero Resources issued a private placing in the company
to eligible buyers of up to $600 million in aggregate principal amount of 5.0%
senior unsecured notes due by March 2025. This offering is expected to close on
December 21, 2016 and AR estimates that it will receive the proceeds of
approximately $593 million to finance the redemption of its $525 million of
outstanding 6.0% Senior Notes that are due in 2020. They will use the remaining
proceeds to fund corporate purposes.
November 8, 2016 - Antero Resources increased its position in Appalachia

(Marcellus and Utica Core Shales) to possess the largest core acreage positon.
Antero has also become the most active producer by operating 11% of the rigs
running in the area and 42% of the rigs operating in liquid rich core areas. In
addition to increasing their position, Antero has reduced the costs of developing
and running wells in both the Utica and Marcellus Shale areas.
Investment Risks
Macro Risk:
Trade: Political conditions in foreign countries that produce or import Natural Gas can affect the price of
NG1 and NGL in the United States. The level of global production and exportation is a concern to AR as they
are looking to export to Europe. Russia and the United States produce the most Natural Gas and due to the
close proximity of Russia and European nations, free trade agreements are of concern which can lead to
inflated United States NG1 in Europe compared to cheaper imported Russian natural gas.
Recession: The Energy Sector is not considered recession-proof. Going back to the recession in 2009, NG1
went from $12.69 in June 2008 and bottomed out at $2.99/MBtu in September 2009. Crude Oil prices went
from $145.31 in July of 2008 and dropped to $34.96 in February 2009. History shows that commodity prices
are susceptible to external factors and may become volatile very quickly. If Trump plans to repeal the DoddFrank Act, a similar economic atmosphere can develop as the one in 2008/2009 and drive commodity prices
down if there is a recession.
Page 7
Industry Risks:
Substitutes: The Energy Sector continues to advance in its usage of technology. Increases in solar, wind, and
geothermal power can affect consumption of Natural Gas. The cheaper solar power becomes, the easier it will be for the
Residential, Industrial, Electric Power, and Commercial sectors to have a faster ROI on their investment in solar.
Additionally, Natural Gas burns 117.00 pounds of Co2/MBtu which is significantly less than Coal, 210.20, and
Gasoline, 157.20, while solar, geothermal and wind power emit 0lbs of CO2/ MBtu. As there are more efforts to combat
climate change, Natural Gas prices can drop as reserves will build up due to decreased production and consumption.
Environment: Hydraulic Fracturing is one way natural gas is harnessed. Fracking practices tend to disrupt land along
with water tables that lay underground. In Texas, North Dakota, Pennsylvania and West Virginia, there have been
accounts of Natural Gas leaks through the ground in to the water table. At times, there have been accounts of well water
catching on fire due to Natural Gas seeping into the water table and contaminating it. If accounts like these continue to
grow, more people will be driven away from Natural Gas consumption. From a company standpoint, damaged land and
health effects from residents can result in lawsuits and loss of fracking licenses.
Company Risks:
Supply and Demand: Since 2014, AR has had to cut its capital spending budget by 50% in 2016 resulting in
decommissioned wells and uncompleted projects. As NG1 and NGL prices fluctuate, ARs revenue will respond
accordingly as low commodity prices will result in low revenues vice versa for high revenues. Low commodity prices
will limit the ability of AR to produce and explore new reserves. Depending on how commodity prices fluctuate and
how wells produce, revenues for AR can become unpredictable. If Trump follows through on his promise of
deregulating Natural Gas and Coal, this could flood the market and keep NG1 prices low.
Uncertainty: Future profitability will depend on the success of drilling operations, development, acquisition activities
and exploration. Low production from wells will force the company to adjust their business model accordingly. Future
business, financial condition, liquidity, and ability to finance planned capital expenditures all heavily depend on the
production from well and the Natural Gas commodity prices. Pressure or irregularities in geological formations will
affect the profitability in production. Additionally, adverse weather conditions such as blizzards, tornados, hurricanes
and ice storms can damage equipment and delay production.
Valuation
Altered DCF, Comp Valuation and Financial Analysis: The price target of $38 is derived by averaging the
price range of $36-$40. This range was derived through an adjusted Bloomberg DCF model as well as a comparables
analysis. I chose a DCF model to value AR due to future confidence in their cash flows. A proven record of sustained
growth and successful acquisitions will lead AR to future profitability. The DCF model allowed me to manipulate flows
for identified growth and production years, along with the tax rates and gross profit margin.
In the DCF model, I used historical company trends as well as future predictions to adjust certain margins. For Revenue
Year over Year Growth in 2017F, Revenue % Growth was changed to 22%, 32% in 2018F and 20% in 2019F (See
Appendix 2). ARs revenue is expected to increase as well as its Gross Profit Margin in 2018 due to increased holdings
and future acquisitions plans in 2017. After drilling and well set up, AR is projected to increase revenue from 9% in
2016YE to 32% in 2018YE.
I projected revenue to increase based on historical trends in Revenue/Well (both exploratory and developed) increasing as
ARs capital expenditure budget was reduced. In 2013, Cost/Well was $7,593,180, $9,109,727 in 2014 and $16,398,273
in 2015. For Revenue/Well, 2013 was $10,258,859, $17,666,442 in 2014, and $29,961,045. (See Appendix 3) Over this
time period, AR increased their well count from 128 in 2013 to 154 in 2014 and reduced it to 132 in 2015 due to capital
expenditure cuts from low NG1 commodity prices throughout 2015. Additionally, 2015 showcases ARs efforts of
reducing external costs while still maintaining high revenues, even with a decreased well count. 2016 is projected to have
a similar trend as 2015 as well count is expected to go down by 20-30 wells but with increased revenues from 2015.
Page 8
As for Gross Profit Margin %, I altered 2017F to 80% as well as 2018F to 75%, while moving 2019F and 2020F to 45%
and 2021F to 43%. Historical trends show that after large net acreage acquisitions in 2012 and 2013, 2014 Gross Profit %
jumped to above 120%. However, I expect cutbacks in free cash flow and capital expenditures for 2017F as most of the
capital will be allocated for developing new acquisitions gained in 2016 and 2017. 2017F and 2018F Gross Profit Margins
are higher than usual based on economic trends from 2014 as AR is developing new land for 2017F and 2018F with
Natural Gas consumption and commodity prices expected to rise.
Due to Trumps election and his appointment of Scott Pruitt as EPA head, I predicted decreases in tax rates on Operating
Income for AR. Trump states he wants to decrease corporate tax rates as low as 15% from 35%. However, I personally
believe he will be held to no lower than 35% which is why I changed the tax rates to 35% from 2018F to 2021F. I kept the
tax rate at 38% in 2017 due to the governments slow pace of passing tax bills and reforms.
With new land acquisitions occurring, I factored in increasing Operating Expenses due to increased employment, well-set
up, transportation, and supplies. In 2017F I predicted the Operating Expense % of Revenue to be 75% in 2017F due to
increased acquisitions and well-development, 70% in 2018F as well- development in 2017F decreases and more
production occurs. 55% in 2019F which is close to the historical average of AR of Operating Expense % of Revenue of
35-55%. Additionally, I moved WACC for AR up to 7.5% as they will incur more debt to finance more projects as they
increase their acquisitions in the future. With more debt taken on, I believe AR will remain more profitable than its
competitors and with a WACC of 7.5, while increasing, it will remain lower than the competitor average (See Appendix
4). With that in mind, I also altered EBITDA to 10.5x as AR will experience a high amount of operations as they set up
more drill rigs and will increase their holdings in the Appalachia Region. Lowered tax rates when Trump is in office will
create more revenue and will lead to operations which may incur higher operating expense but will be offset by increased
revenue from drilling projects.
As for the Comparables Valuation, I compared AR to their eight main competitors. I compared EV/EBITDA to where AR,
11x, was just under the competitor average of 14x. For the future, I expect this multiple to fall to 10.5x as AR will increase
its holdings and production but will incur higher costs of production and increased debt. ARs EV was $14.529 billion
with competitors averaging 19.067. Amongst their competitors, AR is projected to experience a 4.97% growth in Net
Income Margin for Q4 2016 and posted a 3.85% Net Income growth for the year while the competitor average was 0.33%.
Revenue growth year over year for competitors was 3.36% while AR grew revenue 37.30%. The significant increase in
revenue for AR comes from multiple acquisitions of land in 2014 and development and production of those acquisitions in
2015 and 2016. For trailing 12M EPS (after excluding extraordinary items), AR was second highest at $0.49 while the
competitor average was $-0.52. ARs unadjusted beta value was 0.94 while the competitor average was 1.20. Additionally,
AR had the lowest raw beta average of its competitors at 0.77 compared to an average of 1.42. AR currently has a WACC
of 6.43% while the competitor average is 8.09%. Due to their low WACC, high net income, year over year revenue growth
margins during slow revenue periods, and relatively high EPS, I conclude that AR is undervalued possesses promising
upside.
Page 9
Appendix 1
http://www.eia.gov/outlooks/aeo/er/index.cfm
Page 10
Appendix 2
Page 11
Matrix Cl1
Cl1
1
NG1 .158
NG1
.158
1
AR
.383
.368
Page 12
Appendix 3
10 k with
Page 13
Page 14
Appendix 4
Ticker
None (9 securities)
Average
AR US Equity
RICE US Equity
RRC US Equity
GPOR US Equity
COP US Equity
COG US Equity
CNX US Equity
EQT US Equity
SWN US Equity
Name
ADJUSTED
Mkt Cap (USD)
Average
ANTERO RESOURCES CORP
RICE ENERGY INC
RANGE RESOURCES CORP
GULFPORT ENERGY CORP
CONOCOPHILLIPS
CABOT OIL & GAS CORP
CONSOL ENERGY INC
EQT CORP
SOUTHWESTERN ENERGY CO
13517.0232
7948.892411
4548.173585
8889.816225
3448.717622
63661.22827
10814.72604
4568.157727
12075.7842
5697.712709
Total Debt/Equity
Average
AR US Equity
RICE US Equity
RRC US Equity
GPOR US Equity
COP US Equity
COG US Equity
CNX US Equity
EQT US Equity
SWN US Equity
Average
RICE ENERGY INC
CONOCOPHILLIPS
CONSOL ENERGY INC
EQT CORP
Average
RICE ENERGY INC
CONOCOPHILLIPS
CONSOL ENERGY INC
EQT CORP
Average
RICE ENERGY INC
CONOCOPHILLIPS
CONSOL ENERGY INC
EQT CORP
Average
RICE ENERGY INC
CONOCOPHILLIPS
CONSOL ENERGY INC
EQT CORP
EV/BE EBITDA Curr Yr
14.63639518
11.07934011
11.77937816
20.34033349
9.121433791
19.34811277
24.43020597
9.494999359
11.83818604
14.29556693
Net Debt/Equity
33.16927105
32.53688812
23.4893322
33.78318787
31.25224495
30.42828178
27.48032761
32.64106369
19.39397049
67.5181427
YTD Raw Beta
EV / EBITDAX Adj LF
9.72481459
9.835001951
7.828296625
12.49896364
8.113310873
7.794788099
12.41035157
9.169424164
10.96586553
8.90732886
14.42400714
11.30270672
12.67609596 N/A
20.67905426
62.24623762
43.09297562
46.53526688
114.2676468
48.04866791
99.63981628
24.10823059
60.03105927
N/A
36.308
5.486
12
N/A
59.196
98.528
40.947
13.916
15.437
6.274
WACC
Avg US $ / BOE Hedged
8.194578982
6.63259848
9.928359944
8.504209618
8.740531588
8.590128514
8.807277152
8.813118088
6.868061782
6.86692567
NatGas % Reserves
13.64833333
20.57
N/A
10.73
13.44
17.79
12.56
12.56
N/A
18.84 N/A
6.8
NI Mrgn Adj:Y
-1.533807172
4.971259117
-1.19284296
-5.384056091
16.45943451
-12.71549034
-6.770489216
-6.948581219
-8.017593384
5.794095039
26.63157143
97
309.306
12.91
468
8.67
13.02
9.532279968 N/A
25.73100281
9.204853058 N/A
11.84205723
0.331162612
3.847035885
-5.597803116
3.997984886
-2.816097975
-5.145228863
3.127072096
-4.885948181
5.362103939
5.091344833
57.47066314
192.6981429
360
5882199.889
3389899.5
4314935.5
4747333.5
2541045
8586939
7139081
4643347.5
1600239
15976979
12.81666667
17.01
55.03313624
52.59560934
NGL Discoveries\
Average Volume:M-3
-0.518338667
0.489895
-0.218268
-0.369309
0.478331
-3.049393
-0.280455
-0.879589
-0.610664
-0.225596
Avg US $ / BOE NGL Unhedged
NI Mrgn Adj:Q
14.30848422
10.35635311
10.34197822 N/A
19.66035475 N/A
10.40515517
17.38581645 N/A
20.96657395 N/A
11.5696948 N/A
13.39986514 N/A
14.69056639 N/A
70.40481349
59.41384125
1.047829986 N/A
70.06588745
34.60594177
66.833992
35.58882523 N/A
70.90707397
12.18795586
282.9919739
1.42
0.77
2.52
1.73
1.69
1.44
1.34
1.18
1.12
1
P/E
NGL Developed Rsrv
Trailing 12M EPS after XO items
1.204303801
0.936860332
1.361971185
1.204938595
1.143571725
1.365557152
1.067014681
1.681420731
0.840560975
1.236838838
Enterprise Value/EBITDAX LF
Average
AR US Equity
RICE US Equity
RRC US Equity
GPOR US Equity
COP US Equity
COG US Equity
CNX US Equity
EQT US Equity
SWN US Equity
19067.98253
14089.81841
5826.339585
12715.98323
4045.711622
88312.22827
11833.72304
7753.141727
16434.1842
10600.71271
96.69095442
59.64581299
34.82460785
70.07581329
55.72192001
78.69486237
53.09316254
72.777565
31.13728714
414.2475586
BEst EV/BEst EBITDA

Average
AR US Equity
RICE US Equity
RRC US Equity
GPOR US Equity
COP US Equity
COG US Equity
CNX US Equity
EQT US Equity
SWN US Equity
Curr EV/T12M EBITDA
Total Debt/Assets
Overridable Adjusted Beta

Average
AR US Equity
RICE US Equity
RRC US Equity
GPOR US Equity
COP US Equity
COG US Equity
CNX US Equity
EQT US Equity
SWN US Equity
Currency Adjusted Enterprise Value
6.8
Rev - 1 Yr Gr:Q
3.361769608
37.30346222
22.14125268 N/A
-3.389137638 N/A
-15.99651297
-10.7207584 N/A
-11.29180942 N/A
8.543001085 N/A
23.34061438 N/A
-19.67418546 N/A
81.58347372
72.159564
100
63.4645128
91.48752513
35.03056235
95.91740554
89.67278968
91.31681875
95.20208521
BEst P/E:1FY
44.48958988
38.53881279
50.44036697
Page 15
Lululemon (LULU)
Equity | Consumer Discretionary
Time Horizon | 6 Months

Price: $67.26
December 21, 2016
Recommendation: BUY
Investment Thesis
Key Statistics
52 Week Price Range
50 Day Moving Average
57.72
One-year Beta
.804
Market Cap
9.53B
Shares Outstanding
127.26M
EBITDA
441.88M
P/E Ratio (TTM, 12/21/2016)
32.69
Lululemon has a very strong strategy to achieve their goal of

an annual revenue of $4B by 2020. This plan revolves around
product innovation, expanding operations in North America,
further advances in E-Commerce business as well as
international expansion.
SPY
LULU
11/9/2016
10/9/2016
9/9/2016
8/9/2016
7/9/2016
6/9/2016
5/9/2016
4/9/2016
3/9/2016
2/9/2016
1/9/2016
Return on $100, SPX vs LULU
12/9/2015
$180
$170
$160
$150
$140
$130
$120
$110
$100
$90
$80
Lululemon has shown growth over the past 3 years, especially

with a record gross profit of $997M recorded in FY 2015.
With millennials making up 25% of the population with an
annual buying power of $200B, I see Lululemon staying
profitable in times to come especially due to the active-wear
clothing trends that exists in today's fashion market. People
want to feel stylish in their workout gear, and Lululemon has
made a name for themselves in providing a better product
that competitors.
45.87-81.81
Lululemon will remain a very prominent company due to the

high demand of stylish workout-gear. In today's day and age
fitness, yoga, and health are at the forefront of focal points
among many people. There will always remain a demand for
expensive and stylish workout gear, which is exactly where
Lululemon thrives.
About the company:
Lululemon is a designer, distributor, and retailer of technical
workout and yoga apparel and was founded in Vancouver,
Canada by Chip Wilson in 1998. The idea of Lululemon came
while Chip was teaching yoga classes in cotton clothing. He
viewed this as inappropriate due to the amount of sweat
The Rambler Investment Fund | By Ryan Coppola
Page 1
Lululemon Athletica and Ivivva Stores

by Location
7.12%
5.28%
16.36%
71.24%
North America
Canada
Australia
Other
Revenue and Net Income, Adjusted

1,200
1,000
800
600
400
200
0
Revenue
Net Income, Adj
Revenue Breakdown
7%
19%
74%
Corporate-owned stores
Direct to consumer
Other - Franchise/Wholesale
accumulated throughout a yoga class as well as the lack of

comfort in traditional workout apparel. The Company offers
clothing lines for women, men, and the young female youth.
The company carries clothes such as pants, jackets, shirts, and
shorts that are all specifically designed for active individuals
and athletic pursuits that may include running, yoga, hiking,
and other physical activities.
Laurent Potdevin is the current CEO of Lululemon. He has over
25 years of experience in the retail industry. His previous
position before coming to Lululemon was President of TOMS
Shoes. Potdevin also worked for Burton Snowboards for five
years as the President and CEO. Stuart Haselden is the CFO at
Lululemon and his career in the executive retail business spans
over 15 years. He has held positions at both J. Crew Group and
Saks Incorporated.
The Company operates 403 stores located in the United
States, Canada, Australia, New Zealand, the United Kingdom,
Singapore, Hong Kong, Germany and Puerto Rico. Companyoperated stores include approximately 40 branded Ivivva
Athletica which specialize in athletic wear for female youth. Its
retail stores are located primarily on street locations, in
lifestyle centers, and in malls. This segment of the Company
generates the largest revenue base. As of 2011, Lululemon no
longer franchises stores and all of the stores are owned and
operated by the Company.
Direct To Consumers:
Its direct to consumer segment includes Lululemon and Ivivva
websites, www.lululemon.com and www.ivivva.com. The
Company believes that this will act as a strong contributor to
higher revenues in years to come. In 2012, 14.4% of
Lululemons revenue was generated through e-commerce
sales. Since then, that percentage jumped 5.1% to 19.5%. In
the first fiscal quarter of 2016, direct to consumer net revenue
increased by 17% to $97.6M.
Page 2
Macroeconomic Indicators
MoM % Change CPI, SA
Consumer Producing Index:

The CPI measures inflation as experienced by consumers in their
day-to-day living expenses. The CPI is generally the best measure
for adjusting payments to consumers when the intent is to allow
consumers to purchase a market basket of goods and services
equivalent to one that they could purchase in an earlier period.
There are many variables that can impact the price of
Lululemons clothing. These variables include the costs of raw
materials, design, manufacturing, and fulfillment. In retail, there
is the additional cost of brick and mortar stores as well as wages
and benefits. Lastly, there is the cost of marketing the brand and
products. Over the past 10 years, many of these costs have
increased dramatically. These increases are not beneficial to the
Companys margins, but they effect the entire retail industry.
9/1/2016
7/1/2016
5/1/2016
3/1/2016
1/1/2016
11/1/2015
9/1/2015
7/1/2015
5/1/2015
3/1/2015
1/1/2015
11/1/2014
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
Women's and Girls' Apparel

Men's and Boys' Apparel
US Average Hourly Earnings, Private

Employees (SA)
26
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
-0.10%
-0.20%
25.8
25.6
25.4
25.2
25
24.8
Average Wage ($)
Rate of change
University of Michigan Consumer

Sentiment
100
98
96
94
92
90
88
86
84
82
80
Wages:
For years after the 2008 financial crisis, growth in average
hourly earnings has remained relatively low, growing at about
2% year over year. This was most likely not high enough to
support the Feds stated inflation target of 2% year-over-year.
However, 2016 has seen wages growing at a somewhat faster
rate, with average hourly earnings growing in a range of 2.2% to
2.6% year-over-year, and hitting a post-recession high of 2.8% in
October. An increase in wages leads to increased buying power
for the consumer which may significantly benefit Lululemon in
the future. Additional earnings may drive consumers of averagequality workout apparel to purchase higher quality products
such as those offered by Lululemon.
11/1/2016
9/1/2016
7/1/2016
5/1/2016
3/1/2016
1/1/2016
11/1/2015
9/1/2015
7/1/2015
5/1/2015
3/1/2015
1/1/2015
11/1/2014
Consumer Sentiment:
Right now, consumer sentiment is increasing. The consumer
sentiment is a survey of the general publics personal financial
situation, overall opinion of the financial condition of businesses
for the next twelve months, and current attitude toward buying
major household items. The Companys profits benefit heavily
off of positive consumer opinions of the economy. If customers
are confident in their personal financial situations, they are more
likely to buy more products from the Company.
Page 3
Lululemon Corporate Owned

Stores
400
350
300
250
200
150
100
50
0
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Revenue Breakdown
100%
80%
60%
40%
20%
Grassroots Marketing:
Lululemon uses a "grassroots" marketing approach to
advertise their products. This concept differentiates
Lululemon from its competitors by seeking brand awareness
through community-based activities such as offering free yoga
and fitness classes to local communities through the store.
The classes are led by Lululemon ambassadors who embody
the Lululemon brand. Ambassadors teach and engage with
customers in order to increase understanding of specific
products. These ambassadors receive 15% off of Lululemons
merchandise. Lululemon seeks to build extreme brand loyalty
through its inclusive community with the goal of driving its
consumer-base going forward.
Vertical Retail Strategy
Lululemon products are sold through Company-owned stores,
high-end lifestyle centers, and yoga studios. Lululemon
separates itself from competitors by staying true to a boutique
approach which has helped them achieve higher profit
margins and cemented its position in consumers' minds as an
elite performance company.
0%
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Corporate-owned stores
Direct to consumer
Franchise/Wholesale
Lululemon is a firm believer in creating a very personal and

up-close customer experience. The sales associates, also
known as "educators," focus on developing a personal
connection with each customer. They gain skills for this by
undergoing 30 hours of in-house training. Vertical retailing
allows Lululemon to reduce response time and provide new
products to the market monthly.
Competitors
Lululemon holds a very strong position in its respective market
due to its innovative product design and premium pricing.
Lululemon is well-positioned going into 2017 in comparison to
competitors because of their superior pricing. This allows the
Company to experiment with highly innovative fabrics and
Page 4
designs. Lululemon has not yet reached its full potential in the
US market as well as underpenetrated Asian and European
markets. No high-end retailer has a significant presence in any
of these emerging markets.
Diluted EPS
3
2
1
0
2010
2011
2012
LULU
2013
2014
NKE
COLM
2015
LTM
Gross Profit
2500
2000
1500
1000
500
0
2010
2011
2012
LULU
2013
UA
2014
2015
LTM
COLM
Lululemons competitors are predominantly large retail

clothing companies such as Nike, Adidas, and Under Armour.
These companies distinguish themselves through
endorsements to high profile athletes, creative marketing
campaigns, and economies of scale.
With respect to marketing, Lululemon does the opposite of
some of the bigger companies by almost entirely avoiding
media and print advertisements. Instead, the Company
focuses on selecting ambassadors within specific markets to
develop the Companys brand in specific areas. Lululemons
competitors maintain a strong brand awareness at all times
and possess much greater market share than Lululemon. Nike,
Adidas, and Under Armour offer a much wider range of
products in comparison to Lululemon. Lululemons
concentration is geared more towards women with a direct
focus towards yoga and running activities.
There are other companies that compete with Lululemon on a
smaller scale such as Gap's Athleta brand and BEBE Sport. Gap
Athleta launched in 2009 and focuses on offering women
yoga, running, tennis, and golf apparel at a much lower price
than Lululemon. These brands pose a potential threat to
Lululemon, however, in recent years, they have not had a
significant impact on Lululemons consumer following and
total revenue. That being said, if these smaller brands are able
to grow market share and product quality, Lululemon may
need to adjust their pricing model which may in turn reduce
profitability margins on individual products.
Net Income Margin

25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2010 2011 2012 2013 2014 2015
LULU
NKE
UA
LTM
COLM
Lululemon also does not hold any current patents on their

fabrics or designs making it a lot easier for current and future
competitors to manufacture and sell products with the same
design and fabrics at a lower price.
Page 5
Gross Profit Margin

58%
56%
54%
52%
50%
48%
46%
44%
42%
40%
2010
2011
LULU
2012
2013
UA
2014
2015
COLM
CT1 Cotton
85
LTM
NKE
Investor Risk and Threats

An economic downturn in Lululemons key markets may affect
consumer spending and demand for the products Lululemon
provides. Factors such as consumer confidence and fear of
recession play a huge role in Lululemons revenue generated
each quarter. As global economic conditions continue to be
volatile, trends in consumer spending remain unpredictable.
When consumer spending and consumer confidence decline,
hitting sales targets becomes more difficult, especially in
North America. However, of late, conditions appear to be
strengthening with respect to consumer spending in the U.S.
Lululemon operates in a highly competitive market and the
size and resources of some of its competitors may allow them
to compete more effectively than Lululemon, resulting in a
loss of market share and a decrease in Lululemons net
revenue and profitability.
80
75
Lululemons competitors may be able to maintain and grow

can. Lululemon operates with a "grassroots" marketing
approach while many of their competitors promote their
brands through traditional advertising, and celebrity
endorsements.
70
65
60
55
50
5/5/2014
5/5/2015
5/5/2016
Lululemon owns no patents or rights in the technology or

fabrics they use to create and manufacture their products.
Lululemons current and future competitors are able to
manufacture and sell products with performance
characteristics, fabrication techniques, and styling similar to
Lululemons products. Additionally, Lululemons lack of longterm supplier contracts may pose a threat to the day-to-day
sale operations at the Company. The Companys lack of longterm contracts with its many suppliers could cause prices of
products to increase with any sudden changes to the prices of
inputs such as cotton or petroleum.
CL1 Crude Futures

120
100
80
60
40
20
5/5/2014
5/5/2015
5/5/2016
Page 6
Valuation
In the short term, I am positive on Lululemon will continue
their top-line performance, and Lululemon will continue to
benefit from easy comps, and the high growth of the athletic
leisure trend. They are also looking at significant square
footage expansion opportunities worldwide. I also see the
company to continue investing in IT, new product
development, and their grassroots marketing strategy.
EBITDA Multiple Method
Current Price (USD)
69.30
Cons ens us Price Target
72.10
DCF Estimated Value per Share (USD)
85.20
DCF Estimated Upside
23%
Terminal EBITDA Multiple
12.8x
14.3x
15.8x
17.3x
18.8x
7.3%
74.52
81.69
88.87
96.04
103.22
Dis count
7.8%
72.99
80.00
87.01
94.02
101.03
Rate
8.3%
71.50
78.35
85.20
92.05
98.90
(WACC)
8.8%
70.05
76.74
83.43
90.13
96.82
9.3%
68.64
75.18
81.72
88.26
94.80
12.8x
14.3x
15.8x
17.3x
18.8x
7.3%
8%
18%
28%
39%
49%
7.8%
5%
15%
26%
36%
46%
8.3%
3%
13%
23%
33%
43%
8.8%
1%
11%
20%
30%
40%
9.3%
-1%
8%
18%
27%
37%
Assumptions: Lululemons revenue and capital expenditure will also

increase in the future. So much of the Companys reputation is based
off their grassroots marketing strategy, proving why a store presence
is very important to the customer as well as the Company. The
Companys gross profit margin percentage will increase in reliance to
new technology and innovation from a research and development
standpoint.
Page 7
LULU
1-Yr Beta
3-Yr Beta
5-Yr Beta
7-Yr Beta
Avg. Beta
Recession Beta
0.8047
0.9068
1.0502
1.2591
1.0052
1.3358
Beta: Lululemons returns have been similar to the overall market

returns in the past year. Below is a Beta regression of Lulu and SPY. It
is worth nothing that between 2008 and 2010, Lululemon had a beta
around 1.33. A significant downturn in the economy may prove to be
harmful for Lululemon. That being said, Lululemon is a much
stronger company now than it was between 2008 and 2010 and may
weather another downturn more favorably.
Page 8
Appendix:
Income Statement
lululemon athletica Inc (LULU US) - Adjusted
In Millions of USD except Per Share
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
01/29/2012
02/03/2013
02/02/2014
02/01/2015
01/31/2016
1,000.8
1,370.4
1,591.2
1,797.2
2,060.5
1,000.8
1,370.4
1,591.2
1,797.2
2,060.5
431.5
607.5
751.1
883.0
1,063.4
431.5
607.5
751.1
883.0
1,063.4
569.4
762.8
840.1
914.2
997.2
270.0
386.4
448.7
538.1
628.1
270.0
386.4
448.7
538.1
628.1
299.4
376.4
391.4
376.0
369.1
-2.5
-5.0
-5.8
-7.1
-2.9
+ Other Non-Op (Income) Loss
-2.5
-5.0
-5.8
-7.1
-2.9
Pretax Income (Loss), Adjusted
301.9
381.4
397.1
383.1
372.0
- Abnormal Losses (Gains)
12.4
0.0
0.0
0.0
3.5
+ Other Abnormal Items
12.4
3.5
289.5
381.4
397.1
383.1
368.5
104.5
110.0
117.6
144.1
102.4
105.2
116.4
116.8
142.8
95.1
-0.7
-6.4
0.8
1.3
7.4
Income (Loss) from Cont Ops
185.0
271.4
279.5
239.0
266.0
Income (Loss) Incl. MI
185.0
271.4
279.5
239.0
266.0
0.9
0.9
0.0
0.0
0.0
Net Income, GAAP
184.1
270.6
279.5
239.0
266.0
Net Income Avail to Common, GAAP
184.1
270.6
279.5
239.0
266.0
Net Income Avail to Common, Adj
193.0
271.4
279.5
272.7
262.1
8.1
0.0
0.0
33.7
-4.0
12 Months Ending
Revenue
+ Sales & Services Revenue
- Cost of Revenue
+ Cost of Goods & Services
Gross Profit
- Operating Expenses
+ Selling, General & Admin
Operating Income (Loss)
- Non-Operating (Income) Loss
Pretax Income (Loss), GAAP

- Income Tax Expense (Benefit)
+ Current Income Tax
+ Deferred Income Tax
- Minority Interest
Net Abnormal Losses (Gains)

Basic Weighted Avg Shares
143.2
144.0
144.9
143.9
140.4
Basic EPS, GAAP
1.29
1.88
1.93
1.66
1.90
Basic EPS from Cont Ops
1.29
1.88
1.93
1.66
1.90
Basic EPS from Cont Ops, Adjusted
1.34
1.88
1.93
1.89
1.87
Diluted Weighted Avg Shares
145.3
145.8
146.0
144.3
140.6
Diluted EPS, GAAP
1.27
1.85
1.91
1.66
1.89
Diluted EPS from Cont Ops
1.27
1.85
1.91
1.66
1.89
Diluted EPS from Cont Ops, Adjusted
1.33
1.85
1.91
1.89
1.86
Reference Items
Accounting Standard
US GAAP
US GAAP
US GAAP
US GAAP
US GAAP
EBITDA
329.6
419.4
440.4
434.4
442.5
EBITDA Margin (T12M)
32.93
30.61
27.68
24.17
21.47
EBITA
300.7
377.8
392.2
376.9
369.9
EBIT
299.4
376.4
391.4
376.0
369.1
Gross Margin
56.89
55.67
52.80
50.87
48.39
Operating Margin
29.91
27.47
24.60
20.92
17.91
Profit Margin
19.29
19.81
17.57
15.18
12.72
172,350.44
214,688.70
208,762.53
208,300.07
187,320.27
Depreciation Expense
28.9
41.7
48.2
57.5
72.6
Rental Expense
67.1
82.4
95.6
106.0
124.5
Sales per Employee
Source: Bloomberg
Page 9
Balance Sheet
lululemon athletica Inc (LULU US) - Standardized
12 Months Ending
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
01/29/2012
02/03/2013
02/02/2014
02/01/2015
01/31/2016
409.4
590.2
698.6
664.5
501.5
409.4
590.2
698.6
664.5
501.5
5.2
6.4
11.9
13.7
13.1
5.2
6.4
11.9
13.7
13.1
104.1
155.2
188.8
208.1
284.0
Total Assets
+ Cash, Cash Equivalents & STI
+ Cash & Cash Equivalents
+ Accounts & Notes Receiv
+ Accounts Receivable, Net
+ Inventories
+ Raw Materials
+ Finished Goods
2.5
0.6
0.0
0.0
0.0
105.5
163.0
188.8
208.1
290.8
+ Other Inventory
-3.9
-8.4
0.0
0.0
-6.8
+ Other ST Assets
8.4
35.3
46.2
64.7
118.4
91.5
8.4
35.3
46.2
64.7
27.0
527.1
787.1
945.5
951.0
917.0
162.9
214.6
255.6
296.0
349.6
254.4
306.4
374.6
453.9
553.4
91.5
91.7
119.0
157.9
203.8
44.6
49.4
51.2
49.2
47.4
+ Total Intangible Assets
31.9
30.2
28.2
26.2
24.8
+ Goodwill
23.6
23.6
25.5
25.5
23.8
8.3
6.6
2.7
0.7
0.9
8.6
15.0
18.3
16.0
11.8
+ Taxes Receivable
+ Misc ST Assets
Total Current Assets
+ Property, Plant & Equip, Net
+ Property, Plant & Equip
- Accumulated Depreciation
+ Other LT Assets
+ Other Intangible Assets

+ Prepaid Expense
+ Deferred Tax Assets
4.1
4.2
4.7
7.0
10.9
Total Noncurrent Assets
+ Misc LT Assets
207.5
264.0
306.8
345.2
397.0
Total Assets
734.6
1,051.1
1,252.4
1,296.2
1,314.1
+ Payables & Accruals
80.7
98.2
77.9
113.6
167.8
+ Accounts Payable
14.5
1.0
12.6
9.3
10.4
8.7
39.6
0.8
20.1
37.7
57.4
57.6
64.5
84.2
119.7
22.8
35.1
38.3
46.3
57.7
22.8
35.1
38.3
46.3
57.7
103.4
133.4
116.2
159.9
225.5
25.0
30.4
39.5
46.8
61.1
25.0
30.4
35.5
43.1
50.3
25.0
30.4
39.5
46.8
61.1
128.5
163.8
155.7
206.6
286.6
206.1
221.9
240.9
242.4
246.2
0.6
0.6
0.6
0.7
0.6
205.6
221.4
240.4
241.7
245.5
373.7
644.3
923.8
1,020.6
1,019.5
21.5
21.1
-68.1
-173.4
-238.2
601.4
887.3
1,096.7
1,089.6
1,027.5
Liabilities & Shareholders' Equity
+ Accrued Taxes
+ Other Payables & Accruals
+ Other ST Liabilities
+ Misc ST Liabilities
Total Current Liabilities
+ Other LT Liabilities
+ Misc LT Liabilities
Total Noncurrent Liabilities
Total Liabilities
+ Share Capital & APIC
+ Common Stock
+ Additional Paid in Capital
+ Retained Earnings
+ Other Equity
Equity Before Minority Interest
4.8
0.0
0.0
0.0
0.0
Total Equity
+ Minority/Non Controlling Interest
606.2
887.3
1,096.7
1,089.6
1,027.5
Total Liabilities & Equity
734.6
1,051.1
1,252.4
1,296.2
1,314.1
Reference Items
Accounting Standard
US GAAP
US GAAP
US GAAP
US GAAP
US GAAP
Shares Outstanding
143.5
144.4
145.3
141.9
137.3
Future Minimum Operating Lease Obligations
270.8
302.9
350.2
395.5
515.8
Options Granted During Period
0.2
0.1
0.1
0.4
0.4
Options Outstanding at Period End
2.3
1.4
0.7
0.9
0.9
Net Debt
-409.4
-590.2
-698.6
-664.5
-501.5
Net Debt to Equity
-67.54
-66.51
-63.71
-60.99
-48.81
81.04
83.96
87.28
83.73
77.77
5.10
5.90
8.14
5.95
4.07
62.68
76.35
82.27
79.97
83.45
5,807.00
6,383.00
7,622.00
8,628.00
11,000.00
Tangible Common Equity Ratio

Current Ratio
Cash Conversion Cycle
Number of Employees
Source: Bloomberg
Page 10
Statement of Cash Flows

lululemon athletica Inc (LULU US) - Standardized
12 Months Ending
FY 2013
FY 2014
FY 2015
FY 2016
Last 12M
02/03/2013
02/02/2014
02/01/2015
01/31/2016
10/30/2016
Cash from Operating Activities

+ Net Income
270.6
279.5
239.0
266.0
284.7
+ Depreciation & Amortization
43.0
49.1
58.4
73.4
84.5
+ Non-Cash Items
18.2
5.0
15.8
19.1
17.2
5.7
3.6
7.9
11.6
17.2
-6.4
0.8
2.1
11.1
18.9
0.6
5.9
-3.6
-6.1
-51.6
-55.3
1.2
-59.7
-16.2
+ Stock-Based Compensation
+ Deferred Income Taxes
+ Other Non-Cash Adj
+ Chg in Non-Cash Work Cap
+ (Inc) Dec in Inventories
-51.0
-38.5
-26.8
-83.3
+ Inc (Dec) in Accts Payable
-13.5
11.6
-2.2
1.2
3.1
12.9
-28.4
30.2
22.3
-13.7
+ (Inc) Dec in Accts Receiv
+ Inc (Dec) in Other

+ Net Cash From Disc Ops
-5.6
0.0
0.0
0.0
0.0
0.0
280.1
278.3
314.4
298.7
370.1
+ Change in Fixed & Intang
-93.2
-106.4
-119.7
-143.5
-141.6
+ Acq of Fixed & Intang
-93.2
-106.4
-119.7
-143.5
-141.6
+ Acq of Fixed Prod Assets
-93.2
-106.4
-119.7
-143.5
-141.6
Cash from Investing Activities
-93.2
-106.4
-119.7
-143.5
-141.6
+ Dividends Paid
0.0
0.0
0.0
0.0
0.0
+ Cash From (Repayment) Debt
0.0
0.0
0.0
0.0
0.0
+ Cash From (Repay) ST Debt
0.0
0.0
0.0
0.0
0.0
+ Cash From LT Debt
0.0
0.0
0.0
0.0
0.0
+ Repayments of LT Debt
0.0
0.0
0.0
0.0
0.0
+ Cash (Repurchase) of Equity
20.9
14.6
-144.1
-270.7
-127.1
+ Increase in Capital Stock
20.9
14.6
3.3
3.5
7.3
0.0
0.0
-147.4
-274.2
-134.4
+ Other Financing Activities
-26.4
-5.7
-5.0
-3.0
-3.1
+ Net Cash From Disc Ops
0.0
0.0
0.0
0.0
0.0
-5.5
8.9
-149.1
-273.7
-130.2
-0.7
-72.4
-79.8
-44.6
-21.4
Net Changes in Cash
180.7
108.5
-34.2
-163.0
76.9
Cash Paid for Taxes
71.3
155.4
146.4
113.5
0.2
0.1
0.0
0.1
EBITDA
419.4
440.4
434.4
442.5
475.3
Trailing 12M EBITDA Margin
30.61
27.68
24.17
21.47
21.04
0.0
0.0
0.0
Cash from Operating Activities

Cash from Investing Activities
Cash from Financing Activities
+ Decrease in Capital Stock
Cash from Financing Activities

Effect of Foreign Exchange Rates
Cash Paid for Interest

Reference Items
Net Cash Paid for Acquisitions

Tax Benefit from Stock Options
9.9
6.5
0.4
-1.2
-0.5
Free Cash Flow
186.9
171.9
194.7
155.3
228.5
Free Cash Flow to Firm
186.9
171.9
194.7
Free Cash Flow to Equity
186.9
171.9
194.7
155.3
1.30
1.19
1.35
1.11
1.65
52.29
38.51
48.96
56.12
41.88
1.04
1.00
1.32
1.12
-0.04
Free Cash Flow per Basic Share

Price to Free Cash Flow
Cash Flow to Net Income
228.5
Source: Bloomberg
Page 11
Terra Tech Corp ($TRTC)

Industrials | Farm & Agricultural Equipment
Recommendation: Buy
Time Horizon: Long-Term

Price: $0.27
December 17, 2016
Investment Thesis
Terra Tech Corp. (TRTC) is well positioned for growth within the emerging cannabis and hydroponic produce
industry. Compared to its competitors, TRTC is the only vertically integrated company in the industry that
focuses on capturing market share across multiple areas of the market through its cultivation and harvesting to its
refining and dispensing of products. TRTC efficiently manages several subsidiaries that are able to implement
superior technology to harvest healthier, safer, and more high-quality yields per grow. Likewise, TRTC operates
within California and Nevada, two states that are projected to be huge drivers of cannabis sales in the future.
TRTC also continues to grow its hydroponic produce business by taking advantage of the growing demand for
organic food and by continuing to establish contracts with grocery stores such as Wegmans and Walmart.
TRTCs drive and commitment to be a vertically integrated company that offers a superior product gives them a
competitive advantage over all their competitors listed under the BI Global Cannabis Index as well as other
hydroponic produce distributors.
Description
Terra Tech Corporation, through its wholly-owned subsidiaries, not only develops and manufactures equipment to
grow and sell numerous plants in an indoor and portable capacity by utilizing liquid rather than soil, but also is
licensed to cultivate, produce, and dispense medical and recreational cannabis products to qualified, registered
medical and recreational marijuana establishments in the safest and most secure manner. The Company currently
sells its hydroponic products to Fortune 500 companies, horticulture enthusiasts, local urban farmers, and
greenhouse growers. Terra Tech Corp. also sells its cannabis products through company owned dispensaries in
California and Nevada as well as to hundreds of independent dispensaries throughout California.
Catalysts
Risks
Definite opening of 2 new dispensaries, one harvesting facility, and potential licenses to open as many as 8
more locations throughout Nevada
Political landscape forecasted to favor the legalization of cannabis in many new states
Only business that is vertically integrated, allowing Terra Tech to create a quality product and follow it
through its lifecycle
First Mover advantage in marketplace because obtaining proper licenses to cultivate and distribute cannabis
requires 12 to 24 months, effectively creating huge barriers to entry for new competitors
Potential acquisition target for Private Equity Funds or Tobacco and other Pharmaceutical companies
Increase in operating expenses and cost of goods sold
Potential lawsuits if state laws change in favor of making cannabis and the sale of it illegal
Increase in competition due to an influx of big corporations joining the cannabis market
The Rambler Investment Fund | Noah Radlich & Chris Ayala
Page 1
The Cannabis industry observers remain optimistic on

U.S. cannabis sales growth after seven states voted on
November eight to decriminalize cannabis sales in some
form.
Predicted Industry Growth- New markets, notably
recreational use in California, may create an additional
$7 billion in U.S. cannabis sales by 2021, according to
GreenWave Advisors. California has the largest and
most influential impact on the cannabis industry.
Nevada is also expected to see an increase in revenue
for cannabis as it just recently approved its medical and
recreational cannabis sales. GreenWave also projects
U.S. cannabis sales to reach almost $30 billion in 2021,
which represents a 35% compounded annual growth
rate from the estimated levels in 2016.
Recreational cannabis is expected to surpass medical
cannabis sales and is also expected to generate the most
revenue in the U.S. for retail cannabis sales moving
forward.
Growing Support & Acceptance- As the U.S.
population learns more about the health benefits of
cannabis, the legalization of cannabis is gaining more
support in every age group, according to the Gallup. In
addition, the Gallup reports that almost 45% of the
population has tried marijuana before. As of now, 59.3%
of the U.S. population now lives in a state where
cannabis has been legalized, and the percentage is
expected to rise.
Voter approval of recreational cannabis use in California
alone may significantly spur cannabis related sales while
raising the chances of further expansion in other states,
even with the election of Donald Trump to the
presidency.
Economic Performance- The BI Global Cannabis
Index vs. S&P 500 Performance is up almost 200% in
2016, easily outpacing the 5% gain by the S&P 500
and the 1% decline of the Bloomberg REIT Index.
Cannabis related stocks are up 198% this year through
November 8, measured by the total return performance
of the BI Global Cannabis Index, surpassing the S&P
500 Indexs 6.6% gain. The BI Cannabis Index is a
market capitalization weighted group of public
companies involved in cannabis related products.
Page 2
Business Analysis
Terra Tech Corp. operates several subsidiaries that focus on medical cannabis and urban agriculture.
Blm - A medical marijuana dispensary that offers medical marijuana flowers, edibles, and concentrates, as
well as unsweetened topical and ingestible medications to patients that are located around the dispensary.
They currently have three locations: Blm Oakland, CA 578 West Grand Avenue; Las Vegas, NV 1921
Western Avenue; Blm Las Vegas, NV 3650 S. Decatur Blvd. Blm plans on opening two new dispensary
locations by 2018, located in: Blm Las Vegas, NV 1130 Desert Inn Road; Blm Reno, NV 1085 S.
Virginia Street.
MediFarm, MediFarm I, and MediFarm II- Three subsidiaries used for the purposes of research and
cultivation of medical marijuana and/or the operation of dispensary facilities in various locations in Nevada.
They also manage the RFP process and have obtained permits for marijuana cultivation, production and
dispensaries for Terra Tech. They have received eight provisional licenses from the state of Nevada, and
have received preliminary approval form local authorities with respect to all eight of such licenses. They
plan on being in Clark County, NV; Reno; Nevada; and Spanish Springs; Nevada.
IVXX - Formed for the purpose of producing a line of cannabis flowers and cigarettes as well as a complete
line of cannabis pure concentrates including: oils, waxes, shatters, and clears. IVXX currently sells its
products at wholesale to approximately 200 select dispensaries in California as well as their Blm
California location.
Edible Garden - The retail seller of locally grown hydroponic produce, herbs, and floral products which are
grown using environmentally sustainable methods and distributed throughout the Northeast and Midwest
areas of the United States. Their products are sold to approximately 1,800 retailers throughout these markets.
Edible Garden also buys other organic products from independent farmers to sell to these retailers. Edible
Garden has fresh produce that is locally grown, GFSI certified, non-GMO and sustainable. They are also
USDA Certified Organic, Non-GMO Project Verified, GFSI Certified and Certified Kosher
MediFarm I RE - This subsidiary is the real estate holding company that contracts and leases properties and
buildings for the use of expansion purposes.
IVXX
Product line is
distributed to Blum
and other
independent
dispensaries located
in California
Blm
-Currently has 3
dispensaries
1 location in California
and 2 in Nevada.
Planning on opening 2
more in Nevada by
2018.
MediFarm, MediFarm I,
MediFarm II, MediFarm RE
-Plan on having 3 Locations in

Nevada
-MediFarm and MediFarm II
will be research and
dispensaries
-MediFarm I is strictly
research
-MediFarm RE deals with
leasing and licensing land
Edible Garden
-Headquarters Located
in New Jersey.
-Grow and buy
organically produced,
hydroponically grown
produce
- Sells to 1800 retailers
across Northeast and
Midwest
Page 3
Business Analysis
Hydroponic Produce
Terra Tech was founded in 2012. They have since launched Edible Garden,
a wholly-owned subsidiary that produces various plants such as lettuce,
basil, and other small herbs using their revolutionary hydroponic
technology. Edible Garden then sells these harvested products purchased
from local, organic farmers to nearly 1,800 retailers across the Northeast
and Midwest regions of the United States. Since Terra Techs inception,
the plants harvested through Edible Garden have contributed the biggest
portion of Revenue and as consumer preference continues to favor fresh,
healthy, and organic products, Edible Garden will continue to expand.
Furthermore, winning the business of Wegmans, an influential grocer in
the Northeast, and by introducing chopped lettuce as a product to compete
in the $5 billion yearly lettuce industry, revenue will continue to grow in
the future.
Cannabis Products
Terra Tech utilizes its advanced Hydroponic technology to cultivate,
harvest, and distribute not only an extensive line of medical cannabis, but
recreational cannabis as well. As of now, Terra Techs Cannabis products
are sold in dispensaries across California and Nevada. Terra Tech
currently sells its unique brand, IVXX, to independent dispensaries across
California and has recently opened its own dispensaries in Nevada. Terra
Tech prides itself on using superior technology to offer a higher quality
cannabis product and it is our belief that as their customer base grows,
licenses get approved and states continue to legalize medical and
recreational use of cannabis, the revenue generated by these products will
grow exponentially and soon become the primary revenue for Terra Tech
moving forward.
Page 4
Qualitative Analysis
A Competitive Advantage vs. Recognized Businesses- Terra Tech Corp. is the first and only business in the
marketplace today that not only conducts business purely in the hydroponics industry, but is also vertically
integrated across all processes within the company. Thus, Terra Tech can oversee the harvest, cultivation,
distribution, and retail sale of all its potted herbs and its cannabis products. Its immediate business competitors,
however, cannot say the same. Cannabis Pharmaceuticals, a direct competitor of Terra Tech, merely focuses on
medical research regarding cannabis, however, it doesnt cultivate any cannabis for sale. General Cannabis
Corp., another direct competitor, merely deals with real estate in so much as they can lease cultivation space to
cannabis harvesters. The final direct competitor, GrowBlox Sciences, is only focused on researching and
developing medical cannabis for sale, with no plan to increase exposure in the recreational use of marijuana in
the foreseeable future. After evaluating each competitor, it is easy to see that Terra Tech Corp. is the only
company that is self-reliant and completely vested in the cultivation of hydroponic products for an array of uses
and is the only company right now that can cater to the increase in demand for cannabis in the coming years.
A Competitive Advantage vs. Independent Growers- Another huge competitor of Terra Tech are the
hundreds of undocumented and independent growers throughout the country that not only supply the black
market, but the independently owned dispensaries as well. Still, Terra Tech is well positioned for the long run
because while independent growers may produce poor quality and unsafe products, Terra Tech can utilize its
superior hydroponic technology to ensure high yield harvests every time and ensure that a high-quality product
is being dispersed amongst the dispensaries it supplies.
Bottom Line- Terra Tech is the only company on the market right now that can honestly ensure a high quality
and safe product and that has the harvesting facilities, technology, and market presence to be able to meet the
increased demand for cannabis as more and more states legalize its use.
- Use of Hand Selected Hybrid Flowers

- Produces an array of concentrates (oils,
waxes, shatters and clears)
- Offers pre-rolled, high quality joints
- CEO sees creation of Edibles by end of
2017
- Use of hydroponic technology to create
purest, safest, and most potent products
on the market
- Offers an array of herbs from Lettuce,

Basil, Chives, Dill, Oregano, Sage and
Rosemary
- Certified by Global Food Safety Initiatve as
being 100% organic and free from any
pesticides and GMO's
-Is able to uniquely offer customers "live"
herbs that are still attached to their root
system so produce can continually grow,
even in homes
Page 5
RisksAnalysis
Qualitative
Operating Expenses and Cost of Goods Sold Since Terra Tech Corp.s inception, the
company has turned over huge revenue growth
year over year, however, huge increases in
operating expenses and Cost of Goods Sold
have disallowed Terra Tech Corp. to increase its
profit margins by any real amount.
Major Cost Reductions - One reason we believe
that profit margins will increase is because the
company recently negotiated packaging costs per
unit down from $1to $0.20 per unit. We believe
that saving $0.80 cents per package will
significantly reduce the cost of goods sold moving
forward.
Millions
SG&A Expenses vs. Corresponding Revenue

$20
Fixed Costs - Furthermore, we looked to operating

expenses and found two indicators we believe are
integral in assessing future profit margins. The first
piece of evidence we see is that a considerable
amount, nearly 20% of the expenses, are one-time
expenses due to licensing and consulting fees
because of the new stores opening. Another point
we wish to highlight is that, per managements
discussion within the 10-K, a huge portion of the
operating expenses are fixed costs. We believe
revenues will continue to grow at rates similar to
historical growth because both cannabis and
hydroponic products are underdeveloped industries
with huge growth potential. Thus, it is our belief
that while operating expenses and cost of goods
sold will inevitably continue to increase, they will
be decreasing as a percentage of revenues as the
brand continues to grow and become a nationally
recognized product.
$15
$10
$5
$2014 Q1-3 2014 Q1-3 2015 Q1-3 2015 Q1-3 2016 Q1-3 2016 Q1-3
SG&A
Revenue
SG&A
Revenue
SG&A
Revenue
Expenses
Expenses
Expenses
Page 6
Risks
Operating Expenses and Cost of Goods Sold - Moving forward, we see Terra Techs ability to increase
operating income year over year as the most vital key to their success. To do so, Terra Tech must be able to
reduce operating expenses and cost of goods sold as a percentage of revenue moving forward. Because the
company is restructuring its prices for packaging and the fact that a solid portion of operating expenses are onetime expenses or fixed expenses, we believe these costs will decrease as a percentage of revenue. However, it is
definitely a factor to watch in the forthcoming years as management discussion of reducing costs cannot simply
be taken at face value.
Possibility of Reinvented Federal Regulation - Currently, under Federal Law, the cultivation, harvest, and sale
of cannabis is illegal. In the same token, Federal Law doesnt recognize cannabis as having any actual medical
applications. That being said, Terra Tech is at risk of federal authorities enforcing federal law at the state level by
deeming cultivating, harvesting and selling cannabis to be illegal, effectively adversely impacting huge portions
of revenue for Terra Tech. With the way political trends have been moving, however, we see this type of
retracement unlikely.
Possibility of Increased Competition - If states keep legalizing cannabis use at the current rate, it is plausible
to say that Federal Law can change in favor of cannabis by deeming it legal on the federal level. If that happens,
big businesses with more market exposure and disposable income to invest in creating the best cultivation
processes in the world would influx into this lucrative industry and effectively take potential market share from
Terra Tech. As it is now, huge corporations such as Philip Morris have strayed away from the cannabis industry
for fear of legal prosecution and defamation. If federal law deems cannabis legal, though, nothing stands
between this industry and the aforementioned competitors.
Impact
Extensive
Increased Competition
Major
Reinvented
Medium
Federal Law
High Operating Costs and

Cost of Goods Sold
Minor
No
impact
Highly
Unlikely
Unlikely
Possible
Likely
Very Likely
Probability
Page 7
Valuation Assumptions
Actual
Forecasted Income Statement
USD - Millions
12 Months Ending
FY 2012
FY 2013
Forecast
FY 2014
FY 2015
First 3 Quarters
Exp. FY 2016
Exp. FY 2017
Exp. FY 2018
12/31/2012 12/31/2013 12/31/2014
12/31/2015
09/30/2016
12/31/2016
12/31/2017
12/31/2018
12/31/2019
20.9
46.1
115.2
311.1
3.1
12.1
8.8
22.1
24.0
43.8
71.4
108.9
202.2
Revenue
0.6
2.1
7.1
10.0
- Cost of Revenue
Gross Profit
0.5
0.1
2.0
0.1
6.9
0.2
9.0
1.0
- SG&A
18.2
15.1
Exp. FY 2019 Exp. FY 2020

12/31/2020
933.2
280.0
653.3
1.1
3.6
18.3
9.8
13.5
11.5
23.0
34.6
93.3
280.0
-1.0
-3.5
-18.2
-8.8
-10.4
-2.7
0.9
36.9
108.9
373.3
- Depreciation Expense
0.0
0.0
0.4
0.7
1.0
1.6
2.5
3.7
5.5
8.3
- Net Non-Operating Losses (Gains)
4.8
1.4
2.9
0.1
3.8
3.8
3.8
3.8
3.8
3.8
-5.8
-4.9
-21.1
-8.9
-14.2
-6.5
-2.9
33.1
105.1
369.5
- Interest Expense
0.1
1.3
1.1
0.5
0.3
0.3
0.2
0.2
0.2
0.2
0.0
0.0
0.0
0.0
0.8
-0.4
5.0
15.8
55.4
-5.8
-4.9
-21.1
-8.9
-15.0
-7.8
-2.7
27.9
89.1
313.9
0.0
0.0
-0.3
-0.2
-0.6
-0.6
0.0
0.0
0.0
1.0
-5.8
-4.9
-20.8
-8.8
-14.4
-7.2
-2.7
27.9
89.1
312.9
Abnormal Losses (Gains)
4.8
0.0
0.0
0.6
0.9
0.9
0.0
0.0
0.0
0.0
Tax Effect on Abnormal Items
-1.7
0.0
0.0
-0.2
0.0
0.0
0.0
0.0
0.0
0.0
-2.7
-4.9
-20.8
-8.4
-13.5
-6.2
-2.7
27.9
89.1
312.9
FY 2012
FY 2013
FY 2014
FY 2015
First 3 Quarters
Exp. FY 2016
Exp. FY 2017
Exp. FY 2018
12/31/2012 12/31/2013 12/31/2014
12/31/2015
09/30/2016
12/31/2016
12/31/2016
12/31/2016
12/31/2016
Operating Income or Losses (EBITDA)
Pretax Income (EBIT)
Income Before XO Items

- Minority/Non Controlling Interests (Credits)
Net Income/Net Profit (Losses)
Normalized Income
Source: Bloomberg
Income Statement - Growth Rates
Growth Rates
12 Months Ending
Revenue
- Cost of Revenue
Gross Profit
- Operating Expenses (SG&A)
Operating Income or Losses (EBITDA)
233.7%
40.6%
82.4%
110.0%
120.0%
150.0%
170.0%
200.0% Growth Rate
350.9%
240.8%
29.1%
68.5%
58.0%
48.0%
38.0%
35.0%
-11.8%
71.9%
564.6%
205.2%
183.5%
2296.5%
198.1%
183.1%
233.3%
412.5%
-46.3%
37.5%
55.0%
50.0%
30.0%
30.0%
258.7%
421.2%
-51.5%
18.1%
-73.9%
-7.8%
3900.0%
195.3%
30.0% % of Revenue
223.1% Growth Rate
30.0% % of Revenue
242.9% Growth Rate
50.0% Growth Rate
0.0% Growth Rate
- Depreciation Expense
75.0%
90.9%
32.3%
35.0%
64.0%
50.0%
50.0%
50.0%
- Net Non-Operating Losses (Gains)
-71.2%
109.7%
-97.4%
4859.6%
0.0%
0.0%
0.0%
0.0%
-15.7%
332.9%
-57.8%
Pretax Income (EBIT)

- Interest Expense
Income Before XO Items
12/31/2020
284.7%
59.8%
1955.8%
-14.3%
-57.2%
-41.2%
0.0%
-10.0%
-10.0%
-10.0%
-10.0%
88.9%
694.1%
225.9%
1698.4%
0.00%
15.00%
15.00%
15.00%
15.00%
-15.7%
333.0%
-57.6%
67.9%
-48.0%
-65.4%
-1134.6%
219.6%
252.2%
Page 8
Valuation Output
Actual
Final FCFE Output

FY 2012
FY 2014
FY 2013
12 Months Ending
First 3 Quarters
7.1
-21.1
0.0
-21.1
0.4
-5.2
0.4
-4.407
10.0
-8.9
0.0
-8.9
0.6
-0.9
0.7
0.332
-14.2
0.0
-14.2
3.2
-13.2
1.0
-9.022
-25.5
-8.6
-23.2
Exp. FY 2016
Exp. FY 2017
Exp. FY 2018
12/31/2014
0.6
Revenue
2.1
EBIT
Less: Taxes
Debt-Free Earnings (Ebit - Taxes)
Less: Capital Expenditures
0.0
-5.8
0
0.0
-4.9
0
0.0
-0.406
0.0
-3.787
Less: Working Capital Requirements

Add: Depreciation and Amortization
Net Investment
Forecast
FY 2015
Unlevered Free Cash Flow:
115.2
33.1
0.0
0.0
-6.5
3.2
-13.5
1.6
-8.66
-15.2
-17.5
2.5
11.08
8.2
-32.3
3.7
-23.65
9.4
311.1
105.1
15.8
89.3
6
-84.2
5.5
-72.66
16.7
2.30%
-15.2
2.30%
8.0
2.30%
9.0
3
2.30%
15.6
0.0
-2.9
Discount Period
Discount Factor @ 0.0%
PV of Net Debt-Free Cash Flows:
Terminal EBTIDA
Enterprise Value
Fair Market Value:

Total NPV Valuation:
$0.80
$0.10
$3.40
Less: Debt
Less: Minority Interest
Plus: Cash
Equity Value (Market Cap):
Diluted Shares Outstanding:
Fair Value per Share:
Terminal EBITDA Multiple

Terminal Value
Disc Period
Disc Rate
Disc Factor
PV of Terminal Value
$
$
$
933.2
369.5
55.4
314.1
8
-243.3
8.3
-226.95
87.1
4
2.30%
79.5
377.80 5th Year EBITDA

139.91
0.37
139.91
4.00
0.02 Bloomberg WACC
0.91
127.74
$0.44
Forcasted Revenue Growth
Contribution to Price Objective: 5 Year Discounted Cashflows and Terminal

Value Assumption
43%
50%
0%
$-
57%
5 Year Forecast of Discounted Cashflows

Discounted Cashflows from Terminal EBITDA Growth
Revenue Growth Rate
Revenue (Mils)
Page 9
Conclusions
Opening New Facilities to Capture New Market - Terra Tech Corp. is in the process of opening two
new recreational dispensaries in Nevada, constructing a new cultivation facility in Nevada and has a
potential to open up eight new cultivation facilities and dispensaries under their wholly owned
subsidiaries MediFarm, MediFarm I, and MediFarm II, if preliminary licensing is approved. With a
projected opening of 11 more locations, Terra Tech will exponentially grow its presence in the market and
be able to adequately supply the dramatic increase in demand for cannabis products moving forward.
Political Landscape Favoring Legalization of Cannabis - After a total of seven states voted for the
legalization of medical or recreational cannabis use in November, the landscape for the cannabis market
dramatically changed. Now, 58% of states and Washington D.C. have legalized medical marijuana and
16% of states and Washington D.C have legalized recreational use of cannabis. Adding additional market
segments, especially recreational use in California and Nevada this past November, has helped highlight
the losing battle the Federal Government faces regarding the legalization of cannabis. It is high likely that
this trend of legalization continues moving forward and as legalization of cannabis grows, so too will the
market Terra Tech can reach and the revenues it generates.
First Mover Advantage in Regulated Market - Since 2012, Terra Tech has dedicated time and
resources into obtaining the proper licenses needed to gain approval to cultivate, harvest, and sell cannabis
products in the United States. Finally, after four years, Terra Tech is positioned to finalize many pending
licenses and increase its presence by eleven locations. However, no other company in the market right
now has put forth the paperwork to obtain licenses. Thus, Terra Tech enjoys at minimum a 24-month head
start on the rest of competition to begin selling its products and capture the underdeveloped market, due to
the time it will require for other companies to obtain licenses and construct facilities.
Potential Acquisition Target As Terra Tech is the first vertically integrated hydroponics and cannabis
producer, Private Equity funds can potentially see this as an opportunity to acquire and invest large
amounts of capital to increase technology and grow cultivation and dispensary locations. By doing so, it
would leave Terra Tech as a dominant force, able to expand its market to new heights. Conversely, with
an increased likeliness that federal law will deem cannabis legal, it opens up the market to Tobacco
companies and Pharmaceutical companies alike that are looking to expand their influence by acquiring
select companies who are already integrated into the cannabis market. Thus, Terra Tech would be able to
exponentially increase its market presence due to the extensive reach and brand loyalty big tobacco and
pharmaceutical companies possess.
Bottom Line - Terra Tech Corp., although a young company within an underdeveloped industry, is a
perfect growth play for the investment portfolio. Terra Tech is the only vertically integrated company
occupying the hydroponic produce and cannabis market. Both markets have huge growth potential due to
a change in consumer preference favoring organic and healthy produce, as well as an increase in the
legalization and use of cannabis across the country. This, coupled with the opening of new cultivation and
dispensary facilities, a stabilization of operating expenses and cost of goods sold, and the ability to use
cutting edge technology to consistently produce healthy harvests reaffirms our belief that Terra Tech
is in a perfect position to capitalize on the market. Timing for an investment in Terra Tech is perfect
because we are able to invest in a company before it inevitably expands into the hydroponic juggernaut it
is positioned to be.
Page 10
Overview of the Domestic Airline Industry

Industrials | Airlines
December 21, 2016
Distribution of Domestic Airline Revenue, 2015

Business, First Class
Domestic Passengers
14.6%
Cargo
Transport-related,
Other
Domestic Coach
Passengers
1.2%
2.4%
81.8%
The Rambler Investment Fund | By Andrew Hadley
The Domestic Airline industry has a long

history filled with bankruptcies, consolidations,
public outrage, government regulation, and high
profits. The industry is comprised of Legacy
Carriers that offer more options for fliers such
as
several classes
of
seating
and
international
flights
(United
Continental
Holdings, Delta Air Lines, American Airlines),
Low-Cost Carriers that offer more affordable
service with fewer luxuries that Legacy Carriers
(Southwest, JetBlue), and Ultra Low-Cost
Carriers that offer very inexpensive tickets
with very little additional service (Spirit,
Frontier).
The industry has seen incredible growth in
revenue and profits in the past two years as fuel
prices have dropped significantly and demand
has steadily increased. While fuel
prices
have slightly increased since bottoming out in
January 2016, the current market for jet fuel
is excellent for airline companies margins.
The cyclical industry benefits from increases in
consumer spending and consumer confidence,
low fuel prices, and favorable weather conditions.
From 2002 to 2015, the percent of U.S. carrier
flights taking off and landing in the U.S. has
shrunk from 93.1% to 90.6% due to the growing
presence of U.S. carriers flying to international
locations. I expect this trend to continue into 2017
as airlines look to grow and expand operations in
new markets outside the U.S.
Page 1
Macroeconomic Conditions
The strength of the airline industry is dependent on the health of the overall economy. The industry has
seen tremendous growth throughout the somewhat slow recovery since the financial collapse in 2008.
Some of the key indicators that help forecast the growth of the industry include personal consumption,
consumer sentiment, consumer confidence, unemployment rates, disposable income, and corporate profits.
From 2001 to 2005, the U.S. airline industry had collective losses of about $40B, primarily due to the
economic downturn. Not surprising, in the fourth quarter of 2008, w hen quarter over quarter
(seasonally adjusted) real GDP and personal consumption fell 8.2% and 4.7%, respectively, Network Airlines
like United and American lost a combined $1.68B while all low-cost airlines such as JetBlue and Southwest
gained $189M.
Personal Consumption Total personal consumption
expenditures
(PCE)
has
continued
growing
throughout the economic recovery. PCE measures
the amount of spending on goods and services in the
economy and is a good measure of the financial
strength of U.S. households. Growing PCE has a
positive impact on U.S. airlines as Americans have
generally been spending more on goods and
services like air travel. Further growth in PCE should
support growing revenues.
Consumer Sentiment In the past five years, the
University of Michigan Consumer Sentiment metric
has continued growing. This indicator is from a
survey of over 500
citizens with questions
pertaining
to individuals
attitudes
towards
economic
strength, personal
finances,
and
expectations for the future economy. The indicator
has become a key determinant of economic forecasts
and can impact the prices of securities. Sentiment
grew 6.6 points from October to November. This
increase is most likely a result of the election and
the pro-business rhetoric of Donald Trump. A high
survey score bodes well for airlines. If consumers are
financially strong and optimistic about the economy,
they are more likely to spend on discretionary
goods such airfare. Additionally, business travel is
correlated to the health of the economy.
Unemployment The U3 unemployment rate fell to
4.6% in November, the lowest since summer of 2007.
U6, a more accurate representation of real
unemployment fell 9.3% in November. Total job
openings have slowly increased at varying rates over
the past four years. Lower unemployment typically
bodes well for the overall economy as more
Americans are working. The FOMC suggests a
healthy unemployment rate between 4.5% and 6% as
too little unemployment tends to suggest the economy
is overheating.
Page 2
Macroeconomic Conditions
Disposable Income Per capita disposable
personal income is the average after-tax income
for an individual American. This metric can help
gauge the well-being of consumers and the
general economy. Looking towards 2017, tax
rates are expected to fall with Donald Trumps
comments on tax reform. Lower taxes for
Americans will increase disposable income and
allow for increased spending on goods and
services. Increasing after-tax income will bode well
for airlines as more than two thirds of all airline
revenue comes from leisure travel. The remaining
one third of total revenue is from business
travel. This revenue segment may also increase
due to lower taxes and greater disposable income
as consumer spending may drive business
spending.
Corporate Earnings Corporate earnings have
been less than spectacular over the past two
years. Declining or slowing growth of corporate
profits typically lead businesses to cut back on
spending for business travel. Donald Trump has
repeatedly expressed his displeasure with the
existing corporate tax rates. While there have
been no formal announcements of policy
changes, many expect Trump will succeed in
lowering corporate tax rates to stimulate business
spending and development. Any lowering of
corporate
tax
rates
will
help increase
corporate earnings and potentially increase
corporate spending on business travel.
Page 3
Average Costs of all Industries in

sector, 2016
Industry Costs
100%
Percentage of Revenue
26.7%
36.3%
80%
5.90%
5.60%
60%
6.00%
4.40%
40%
24.40%
20%
15.70%
24.60%
12.50%
9.10%
1.10%
0.70%
26.50%
0%
Profit
Wages
Purchases
Depreciation
Marketing
Rent & Utilities
Other
Wages Over the past ten years, total wages have

accounted for between 14% and 16% of total
revenue across the domestic airline industry. However,
wages have been increasing in the past two years and
are expected to continue growing. Much of this is a
result of the heavy presence of unions. While the total
percentage of union employees fell to 11.1% in 2015,
the domestic airline industry remains heavily unionized
which can limit airlines in their desire to reinvest
profits into
the company. Further pushes for
contract negotiations may hurt profit margins for
airlines in 2017.
Fuel Expectations on the price of oil has historically
played a large rule in the valuations of airline stock
prices as well as revenue projections. In the past ten
years, the cost of jet fuel has eaten up between 15%
and 35% of total operating costs. Fortunately for all
airlines, the price of fuel has drastically declined in past
two years, allowing for record profits for several large
airlines. Savings on fuel are often used towards
expanding operations
and advancing existing
technology within the company.
Many airlines hedge through swaps and lock in prices to
reduce downside risk when oil prices shoot up.
Though, over the past two years, airlines that have
abandoned hedging strategies (American Airlines, in
particular) have benefited far more than others due to
the sudden drop in prices. While industry analysts have
become very critical of airline that continue to hedge,
historically, hedging has proved beneficial. Looking to
2017, I expect oil to fall below $50 per barrel. Much
of the change in price is contingent on OPECs
final decision on reducing production and whether
or not OPEC nations follow through with promises
of cutting.
Several years of production outweighing consumption
as well as greater efficiencies in shale extraction in the
U.S. and another possible year of slow global growth
may benefit domestic airlines in the form of cheaper jet
fuel. Additionally, Trumps comments on pushing for
further investments in oil production will put downward
pressure on oil prices worldwide. The prices of Jet A
and Jet A-1 grade fuels are highly correlated to the
price of oil.
Page 4
Too Much Competition?

The airline industry has become one of the
most competitive industries in the economy.
Since the Deregulation Act of 1978, competition has
continuously increased. This has benefited consumers
as more and more citizens are now able to fly.
Simultaneously, airlines (particularly in the past two
years) have seen high profits due to the volume of
passengers and
reduced fuel expenses that
sometimes account for more than 30% of total costs.
Few airlines have survived bankruptcy and consolidation
over the past 40 years.
Measured in 2016 dollars, the average domestic fare price
fell from $454 to $361 dollars between 1995 and
2016. Over that same period, the total number of
domestic passengers carried rose about 50% from
571M to about 7978M. The reduction in price and the
increase in ridership sparked the emergence of lowcost carriers. Many consumers have been willing
to forego service in exchange for cheap flights.
Looking ahead, the competitive environment that
has developed in the past several decades may
continue to increase, prompting more bankruptcies,
layoffs, mergers, acquisitions, and disgruntled fliers.
I anticipate the biggest airlines surviving due to the
magnitude of their existing operations and buying
power. The ULCCs that have disrupted the industry
like Spirit, Frontier, and JetBlue will continue to hinder
the growth and profitability of the legacy carriers
and Southwest until opportunities for consolidation
are presented. I anticipate the few airlines that emerge
superior from the further consolidation of the
industry will gain more control over fare pricing
because of increased market share and decreased
competition. That said, I do not see this consolidation
occurring in the near-term.
Page 5
2017 Outlook
Due to growing load factors, Donald Trumps pro-business and pro-consumer rhetoric, and a possible
continuation of relatively low fuel costs, I am bullish for domestic carriers in 2017. While competition across
the board will continue to increase, particularly due to pressure from ULCCs, the past two years are proof that
the right economic environment can diffuse the negative impacts of increased competition. While I believe
the industry as a whole will grow revenues and profits, I foresee the most growth and profitability coming
from United and Southwest.
United - United has reduced its exposure to hedging losses in recent years and assesses its hedging
strategies on a quarterly basis. If fuel prices remain low or even fall, United will favor better than other
airlines that continue to hedge a larger proportion of operating fuel. Uniteds strong global presence has put
the company in a good position as global travel continues to grow. The proportion of domestic to
international flights (as opposed to domestic to domestic) has grown at a steady pace over the past two
decades and I anticipate this trend to continue. This global presence also helped United reduce its exposure
to any economic slowdown in a specific country or region.
Additionally, United has expanded its product offering to align its service with the demand of consumers.
Basic Economy is Uniteds counter to the low-cost offerings by competitors and should help offset
potential losses to competitors in 2017. While Trumps pro-business comments, particularly those
on reducing corporate taxes, will benefit United, protectionist policies may reduce international business
travel, specifically flights into the U.S. from overseas. United will be adversely impacted by a slowdown in
international business travel that may arise from slowing global growth and new policies on international
trade and business. That being said, I am bullish for United in 2017 due to the innovations made to service
and the companys business model.
Southwest - Southwest Airlines has had consistent success over the past several decades even as other
airlines have suffered. Its business model has allowed the company to become the largest low-cost carrier
in the United States. Southwest owns the middle ground between legacy carriers and ultra-low-cost
carriers. With increased competition expected in 2017, I anticipate Southwest will continue to profit from
high passenger volume, impressive worker productivity, and relatively low fuel costs. While Southwest has
been heavily scrutinized for its foregone savings due to hedging strategies, the company will likely see
another year of strong profit margins due to Trumps pro-American business comments. Southwest is far
less exposed to any decline in international business compared to its industry competitors as the bulk of
operations are within the United States. However, another technological error similar to that of the 2016
summer may signal concern for investors. Southwest recently announced plans to increase investment
spending on technology as opposed to purchasing additional 737 planes in the short-term.
Q3, 2016
Employees
S&P credit
rating
P/E ratio
ROA
Load factor
Cost per
available
seat mile
(cents)
Revenue per
revenue
passenger
mile (cents)
Available
seat miles
per gallon
Net Income
($M)
EBIT ($M)
Wages,
Fuel, percent Fuel price
percent of
of sales
($/gal)
sales
AAL
121,800
BB-
5.27
11.36%
83.3%
11.96
14.36
66.895
737
1,431
26.2%
16.0%
1.48
DAL
84,084
BB+
9.28
9.05%
85.4%
11.79
15.70
66.204
1,259
1,969
23.5%
15.8%
1.48
JBLU
15,521
BB-
9.92
8.45%
86.3%
9.99
13.20
69.677
199
354
24.3%
16.9%
1.48
LUV
53,072
BBB
12.81
10.20%
85.3%
11.73
14.45
73.843
388
695
37.1%
18.3%
2.02
SAVE
4,326
BB-
13.21
10.76%
86.0%
7.47
11.10
83.119
81
135
19.3%
19.6%
1.56
UAL
85,100
BB-
7.72
6.54%
85.5%
11.65
13.70
68.206
965
1,624
26.5%
16.2%
1.52
Page 6
Teucrium Corn Fund (CORN)

Commodity | Agriculture
Medium/Long Term | 6 Months

Price: $19.26
December 12, 2016
Recommendation: Buy
ETF Characteristics
Closing Price
$19.26
Inception Date
06/09/2010
Exchange
NYSE ARCA
NEV
$79,604,138
Dividend?
No
One month average

volume
Three month average
volume
1,400
9,467
Shares
4,125,004
Expense Ratio
2.89%
Total Return (1 yr)
-9.38%
Total Return (1 mo)
2.96%
Total Return (6 mo)
2.63%
Biggest Holding
52 week low/high
Corn FUT March

1 35.165%
Investment Strategy & Philosophy
General Risks
19.47/19.22
TEUCRIUM CORN FUND

60
50
40
30
20
10
Corn is nearing historical low since harvest lows of

November and spot price is beginning to rise
Diversification benefits for the fund regarding the
current holdings; corn runs on its own yearly cycle
and has very little correlation to equity markets
Potential for La Nina to push back planting time,
resulting in a decrease in supply and increase in
price
Fearful when others are greedy; greedy when
others are fearful
The price of corn still has room to fall

Market Timing - Most volatile months are winter
months after harvest but before planting; U.S.
Government harvesting reports come out around
Christmas and often have a heavy impact on corn
prices
Weather - La Nina and the effects on planting time;
the later the crop is planted, the lesser the yield and
therefore, the higher the price of corn
Using Conservation Reserve Program, the U.S.
Government has the ability to artificially keep
prices low
Greater volatility compared to other assets such as
equities and fixed income due to unpredictable
supply factors of corn (weather and government
policy)
The Rambler Investment Fund | By Rene Miguel and Robert Hettrick
Page 1
Where Is The U.S. Economy Headed?

Overview of U.S. Economy
DOW JONES INDUS. AVG
20,000
19,500
19,000
18,500
18,000
17,500
17,000
16,500
10/3/2016
11/3/2016
12/3/2016
Before the election, the market sentiment was beginning

to shift bearish. However, a couple of hours after
November 7th when Trumps nomination for President
became official, investors expectations turned bullish.
This occurred due to Trumps comments on deregulating
the banking industry (repealing Dodd Frank) and
increasing infrastructure spending. As of today, the S&P
is up 6.01% and the DOW is up 8.2% since November
7th, 2016. We will continue to explore what this might
means for the supply and demand for corn as well as the
impacts on inflation.
Macroeconomic Risk
S&P 500 INDEX
2,300
2,250
2,200
2,150
2,100
2,050
2,000
1,950
10/3/2016
11/3/2016
12/3/2016
Recession/Stagflation - The economy is said to be in a

recession when GDP and corporate earnings are down,
while unemployment is up. Stagflation is identical to a
recession, except it includes a fourth underlying factor,
which is CPI going up. These two are considered
potential risks that can drive the economy down. A
recession would have negative implications for equities
but beneficial for fixed income. Moving on, stagflation
would cause a similar effect but to a greater magnitude
within a shorter time frame. Although economic
downturns are possible, there are various reasons why
these two are very unlikely to occur any time soon.
Drivers of Demand
Population True of all commodities, one of the biggest drivers for demand is population growth. According
to the UN, Africa is expected see the greatest population growth in the next ten years. It is important to
understand which countries have heavy demand for corn as well as their population and expected population
growth rates. For example, Japans lack of population growth will likely result in falling demand for corn.
Government Policy As mentioned before, governments have the ability to artificially price commodities in
order to better serve economies as a whole. This is highly unpredictable and can either have adverse or
favorable effects on corn. Additionally, corn subsidies for ethanol production in the U.S. heavily impact the
demand for corn. With the new administration, it is possible that these subsidies may decline due to the
possible pushes for increased coal, oil, and gas production. It is necessary to pay close attention to statements
from the EPA as well as the President and the Department of Energy.
Standard of Living The quality of life and financial well-being of the world as a whole impacts the demand
for corn and its many byproducts such as animal feed, energy, sweeteners, and alcohol. Any increases in the
standard of living in regions with high populations will bode well for corn while poor economic conditions
will drive the price of corn down.
Page 2
Contributing Segments
CPI YOY Index PX_LAST US CPI Urban

Consumers YoY NSA
12/1/2006
7/1/2007
2/1/2008
9/1/2008
4/1/2009
11/1/2009
6/1/2010
1/1/2011
8/1/2011
3/1/2012
10/1/2012
5/1/2013
12/1/2013
7/1/2014
2/1/2015
9/1/2015
4/1/2016
6
4
2
0
-2
-4
OUTFGAF index PX_LAST Philadelphia Fed

Business Outlook Survey
50
40
30
20
10
0
-10
-20
-30
-40
-50
Generic 1st 'CL' Future

200
150
100
50
0
CONSSENT INDEX PX_LAST University of

Michigan Consume
4/1/2016
8/1/2015
12/1/2014
4/1/2014
8/1/2013
4/1/2012
12/1/2012
8/1/2011
12/1/2010
4/1/2010
8/1/2009
4/1/2008
12/1/2008
8/1/2007
12/1/2006
100
80
60
40
20
0
CPI - During 2015, CPI was relatively low and

moving sideways. However, CPI has been
increasing ever since then. Currently, the CPI
trend is upward, which reinforces a Fed hike in
short-term interest rates. Although the CPI is
below the two percent requirement that the Fed
follows, it is close enough to sway a shift in Fed
policy.
Philly Fed - The total number of jobs is slowly
growing. The chart to the left tracks the
Philadelphia Federal Reserve Banks survey rating
that seeks to assess general business conditions as
well as expectations for business conditions in the
next six months. As of right now, it is sitting on
7.6. The year average is 2.2. Because we are above
the year average, the expectation is that
unemployment will keep decreasing.
Oil - Oil is at $52.81 right now. The ten-year
average futures contract is at approximately $78.
The price of oil is relatively low right now and
isnt showing any signs of a supply shortage.
Much of the levels of supply in the near future will
revolve around OPEC decisions on cutting and
following through on decisions as well as any
changes to U.S. energy policy under the Trump
administration.
Consumer Sentiment - The latest sentiment
report was at 98. High optimism will allow
consumers to consume more and should increase
the demand for corn through its various uses. This,
once again, reinforces the mindset that the
economy is in the growth stage, which boosts
demand for corn.
FED - The Fed has been threatening to increase
interest rates. According to WIRP in Bloomberg,
the probabilities of a Fed hike in December is at
100%. Ultimately, this would be good for corn
because it would indicate a healthy growing
economy and would increase demand for corn.
Ethanol policy - EPA 2017 fuel blend mandate
will result in higher ethanol demand. Policy,
though, is relatively unpredictable with Trump.
Page 3
Conclusion
Many macroeconomic indicators point towards a growing economy. A concern has been that we might be
headed towards stagflation. However, stagflation is unlikely since we are currently missing a supply shock.
Back in 1973, the U.S. depended on approximately 64.6% of oil from the OPEC. Today, the U.S. only relies
on 36.3% of oil from OPEC. Therefore, in a worst case scenario, if OPEC were to create an embargo, the
consequences will likely not impact the U.S. economy the same way it did back in 1973. Additionally, corn
supply is likely to be disrupted by La Nia, and demand is likely to increase based of macro indicators. We
recommend holding CORN for about six months so we can obtain the returns from the harvests high and
will reassess market conditions in the summer months.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed
by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to
its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any
person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy
or sell any security. This report should not be considered to be a recommendation by any individual affiliated with the
Rambler Investment Fund, Quinlan School of Business, or Loyola University of Chicago with regard to this companys
stock.
Appendix 1:
http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbblpd_a.htm
https://www.youtube.com/watch?v=BHw4NStQsT8
Page 4
CFA Institute Research Challenge

Local Challenge CFA Society Chicago
Team Aquarius
Page 1
McDonalds Corporation
(NYSE:MCD)
Recommendation: BUY
Industry: Consumer Discretionary
Sector: Consumer Services
Current Price: $120.76 (January 7, 2016)

Target Price: $136.90
Estimated Upside: 12%
Highlights
Closing price
52-wk high/low
Avg. vol.
$120.25
131.96/110.33
5.66M
Shares Outstanding
P/E ratio
Market cap
Div. yield
830.4M
20.38
99,860.8M
3.00%
1 Year Beta
EV/EBITDA
Institutional Holdings
Insider Holdings
Q3 Dividend
Credit Rating
0.644
13.02
76.39%
0.04%
$0.89
BBB+
Business Description
McDonalds Corporation was founded in 1948 by Maurice and Richard

McDonald. McDonalds incorporated in 1955 after businessman Ray Kroc joined
the company as a franchise agent and purchased the restaurant chain from
Maurice and Richard McDonald. McDonalds filed for an IPO and was first
publicly traded on April 21, 1965. McDonalds is a quick service restaurant chain,
headquartered in Oak Brook, IL, with hamburgers, fries, and soft drinks as the
restaurants core items. With over 36,000 restaurants in 122 countries,
McDonalds has a strong global presence. The company operates in North
America, Europe, Asia Pacific, Latin America, Middle East, and Africa.
McDonalds is shifting its business model to become 95% franchised over time.
Most of the refranchising efforts will take place in their High-Growth and
Foundational Markets. The companys primary market is the United States which
accounts for roughly 34% of global revenue. The top five international markets
are Australia, Canada, France, Germany, and the U.K., which account for 30%
of global revenues.
Source: Bloomberg
$MCD Stock Price

135
130
125
120
115
110
105
100
Source: Bloomberg
Recent News
MCD vs SPX Stock Return
350%
250%
150%
MCD
Source: Bloomberg
SPX
9/22/2016
9/22/2015
9/22/2014
9/22/2013
9/22/2012
9/22/2011
9/22/2010
9/22/2009
9/22/2008
9/22/2007
9/22/2006
50%
-50%
Management McDonalds has recently made significant changes to its

management team. In the past two years, the new management team has
devised a new strategy for the companys long-term expansion and profitability.
Steve Easterbrook has taken over as President and Chief Executive Officer
overseeing the companys restructuring.
Growth Drivers McDonalds growth will result from enhancing the restaurant
experience for customers and continued expansion in highly profitable markets
around the world. Profitability margins are expected to improve due to reduced
overhead expenses resulting from the ongoing process of converting
company-operated restaurants into franchised restaurants.
Investment Analysis We issue a Buy recommendation on McDonalds with a
target price of $136.90 based on a free cash flow to equity valuation and a
dividend discount model (Gordon Growth Model). With these valuations,
we have determined a possible 12% upside for McDonalds stock price. We
also anticipate growth in McDonalds dividend over the next five years as
well as further share repurchases.
Risks Some of the important risks that we addressed in our assessment of
McDonalds pertain to economic, regulatory, credit, currency, and political risks,
as well as changes in consumer preferences.
January 9, 2016 McDonalds announced plans to sell off a large portion of its
operations in China to The Carlyle Group and Citic, a Chinese financial firm.
McDonalds will maintain control of about 20% of operations in China. (CNN
Money)
November 8, 2016 The election of Donald Trump may impact McDonalds
operations. McDonalds stands to benefit from Trumps proposed corporate tax
cuts for American companies. If imposed, these cuts will significantly increase
McDonalds after-tax income as the current tax rate stands above 30%.
President-elect Trump has also made comments that elude to rising inflation
and a stronger dollar which may impact McDonalds repatriation of oversees
income.
Page 2
Management & Governance
Board of Directors In the 2016 proxy statement, McDonalds board of directors reiterated their commitment to
enhancing financial value, driving operational growth, and returning excitement to the McDonalds brand. The current
board consists of a diverse group of experienced professionals aimed at driving long term growth for the company.
With Steve Easterbrook taking on the title of President and Chief Executive Officer in 2015, the company has benefited
from his leadership and vision. Key distinguishing factors arise within the framework of the board: separate Chairman
and CEO roles, ongoing shareholder outreach and engagement, annual election of Directors, annual board and
Committee self-assessments and Director peer review, among others. Furthermore, McDonalds executive
compensation plan is structured to support business initiatives, align interests with shareholders, and strongly link pay
with performance.
Voting Rights & Shareholder Engagement With regard to governance practices, the board approved a new by-law
provision to allow proxy access for director candidates nominated by shareholders. Therefore, any shareholder who has
held 3% of shares outstanding for three years and who satisfies other eligibility requirements may nominate up to 20%
of the board directly onto the companys proxy ballot. Management continues to engage with shareholders comprising
of index funds, union and public pension funds, actively-managed funds, and socially-responsible funds. Throughout
2015, management engaged with roughly 30% of outstanding shares on a broad range of topics including the
turnaround plan, board composition, corporate governance, executive compensation, and environmental and social
issues.
Demand Drivers
Unemployment Rate
12%
10%
8%
6%
4%
2%
0%
USA
Australia
France
Germany
Source: Bloomberg
U.S. Disposable Personal Income per

Capita, Current USD
45,000
35,000
30,000
Source: FRED Data
1/1/2016
1/1/2015
1/1/2014
1/1/2013
1/1/2012
1/1/2011
1/1/2010
1/1/2009
1/1/2008
1/1/2007
1/1/2006
25,000
1/1/2005
40,000
Labor Market The quick service restaurant industry is impacted by any

changes to the health of the macro-economy. As quick service restaurants are
considered cheap relative to the cost of eating at casual and fine dining
restaurants, restaurants are not as impacted by declining levels of consumption.
Overall consumption rises as unemployment falls as more people enter the
workforce and gain access to stable income. Falling or low rates of
unemployment in several of McDonalds key markets such as the United States,
Australia, and Germany has and will continue to benefit McDonalds as well as
the entire industry as more people have sources of disposable income.
Disposable Income Disposable income per capita in the United States has
seen strong growth throughout the course of the post-recession economic
recovery. As is the case with falling unemployment, rising disposable income
increases the demand for overall consumption. Continuous growth of
disposable income, coupled with continuous increases in the demand for eating
out, will benefit the quick service restaurant industry as a whole. As the United
States accounts for a significant portion of McDonalds total revenue, growth
in disposable income per capita will benefit the company if the proportion of
dollars spent eating out to dollars spent on groceries continues to rise in the
United States. That being said, many countries in the world have not recovered
as well as the United States since the recession has impacted McDonalds
growth outside the United States.
Page 3
Source: USDA Economic Research
American Customer Satisfaction Index

75%
70%
65%
60%
55%
2000
2001
2002
2003
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
50%
Source: Statista
U.S. Market, % Franchised & Total Restaurants

100%
14,400
14,350
95%
14,300
90%
14,250
85%
14,200
14,150
80%
14,100
75%
70%
14,050
2012
2013
2014
2015
2016
2017
2018
2019
2020
14,000
International Lead Markets, % Franchised & Total

Restaurants
100%
10,000
95%
9,000
90%
8,000
85%
7,000
80%
6,000
75%
5,000
70%
4,000
2012
2013
2014
2015
2016
2017
2018
2019
2020
High-Growth Markets, % Franchised & Total Restaurants

80%
8,000
75%
7,000
70%
65%
6,000
60%
55%
5,000
50%
4,000
45%
40%
3,000
35%
30%
Household Expenditures The share of household expenditures for food away

from home serves as an indicator of utility for restaurant services. Increasing
trends in this domain can be attributed to several factors such as convenience,
prices and quality of product. Since the 1970s, American families have been
shifting their diets from home cooked meals to restaurant and fast food, or
quick service, services. With quick service restaurants like McDonalds providing
cost-effective food in just minutes, households have responded accordingly by
adjusting their budgets to reflect busier lifestyles. While this study only covers
through 2014, the long-term trend points to a steady rise from 42.5% in 1987
to 50.1% in 2014. Consequently, American diets have shifted away from home
and will most likely continue to do so.
Perceived Quality of Food & Service The quality of food as well as the
perception of the quality are key drivers of the demand for fast food. Awareness
of genetically modified food and a general push for healthy eating in the United
States and around the world can have an impact on the revenues of quick
service restaurant companies as consumers may seek alternatives to fast food
if the quality is perceived to be poor. McDonalds as well as competitors have
taken steps to enhance quality control measures and inform consumers of how
they are improving the quality of food. McDonalds, for example, now serves
the popular Chicken McNuggets with no artificial preservatives. Improvements
have been made by McDonalds to locally source available ingredients with an
emphasis on appealing to localized markets around the world. Significant
funding in recent years has been put towards modernizing restaurants around
the world in order to enhance the customer experience. The American
Consumer Satisfaction Index (ASCI) models customer evaluations of the quality
of goods and services. The ASCI on McDonalds restaurants in the United States
over the past sixteen years shows that McDonalds has overall increased the
quality of restaurants.
Markets of Operation
U.S. Market The United States represents the largest market for McDonalds.
Total restaurants accounted for over 33% of worldwide sales over the first three
quarters of 2016. Operating income across all restaurants totaled $2,836.6M
through the first nine months of 2016. Consistent with McDonalds goal to
become 95% franchised in the long-term throughout the world, we assume a
1.4% annual increase in franchised stores over the next four years. The strength
of the U.S. market is of high importance to the growth of McDonalds. We
foresee strong efforts being taken in this market to reduce costs and increase
total operating margins through further refranchising and openings of
franchised restaurants. As of September 30, 2016, 92% of all restaurants in the
United States market were considered franchised. We expect McDonalds to
continue moving towards a 100% franchise model in the U.S., resulting in lower
costs and higher total operating margins
International Lead Markets International Lead Markets, made up of
established markets including Australia, Canada, France, Germany, and the
United Kingdom, represent a crucial area for McDonalds. Total restaurants
accounted for over 29% of worldwide sales over the first three quarters of 2016.
Operating income across all restaurants totaled $2,127.2M through the first
nine months of 2016. As of September 30, 2016, 83.8% of all restaurants within
the International Lead Markets were considered franchised. McDonalds
continues to adapt and use data to gain better insight into the changing needs
and expectations of consumers. Inflation within these markets are anticipated
to remain subdued between 0% and 1.2% as a result of lackluster growth. With
unemployment plaguing countries in the Eurozone and in particular France
2,000
2012
2013
2014
2015
2016
Source: Federal Reserve Economic Data
2017
2018
2019
2020
Page 4
Foundational Markets & Corporate, % Franchised & Total

Restaurants
100%
13,000
12,000
95%
11,000
90%
10,000
9,000
85%
8,000
80%
7,000
6,000
75%
5,000
70%
4,000
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: Company 10K and Proprietary Forecast
China
120
20
7/1/2016
5/1/2015
3/1/2014
1/1/2013
0
9/1/2010
80
11/1/2011
5
7/1/2009
90
5/1/2008
10
3/1/2007
15
100
1/1/2006
110
Consumer Confidence Index

2 per. Mov. Avg. (GDP Growth YoY)
20
40
15
20
10
CPI YoY
9/1/2015
10/1/2016
8/1/2014
7/1/2013
6/1/2012
5/1/2011
4/1/2010
3/1/2009
2/1/2008
-40
1/1/2007
-20
12/1/2005
% Change
Russia
Operating Expenses
% Change
Source: Bloomberg
Total Expenses
40%
30%
20%
10%
0%
2012
2013
2014
2015
2016
2017
2018
2019
Food & paper

Payroll & employeee benefits
Occupancy & other operating expenses
Franchised restaurant-occupancy expenses
SG&A Expenses
Source: Company 10K
(10%), consumption levels could be detrimental to the companys growth within

this region. In contrast, Australia enjoys strong macroeconomic fundamentals
with high GDP growth of 3.3% as of June, 2016. In total, comparable growth
sales for international lead markets grew a steady 3.4% in 2015 and comparable
guest counts increased 1.0%. McDonalds faces significant exposure to the
International Lead Markets, and plans to continue efforts to add value in the
companys second largest operating segment.
High Growth Markets High Growth Markets offer a significant opportunity
for McDonalds future growth and expansion. This market includes China, Italy,
Korea, Poland, Switzerland, the Netherlands, and related markets. Operating
income across all restaurants totaled $814.7M through the first nine months of
2016. In the High Growth markets, comparable sales increased 1.8% in 2015
while comparable guest counts declined 2.2%. Moving forward, McDonalds will
capitalize on growth opportunities should consumers remain confident.
Company operated margins remained weak within this sector primarily due to
the negative impact from currency and inflationary pressures in Russia, and
higher labor and occupancy costs across the segments.
Foundational Markets and Corporate The Foundational markets span over
80 countries across Asia, Europe, Latin America, Middle East and Africa. This
diverse group of markets share common goals of enhancing the critical
elements that differentiate McDonalds the menu and the customer
experience. McDonalds is also exploring the sale of a portion of the Companys
ownership in McDonalds Japan to a strategic investor who could help advance
Japans turnaround efforts, unlock the markets growth potential, and enhance
value for all stakeholders. The Foundational Markets and Corporate make up
the rest of McDonalds restaurants around the world. These restaurants are
mostly franchised. Total restaurants within this segment accounted for over 12%
of worldwide sales over the first three quarters of 2016. Operating income
across all restaurants totaled -$3M through the first nine months of 2016.
Comparable sales increased 0.7% in 2015 and comparable guest counts
declined 3.7%. Solid performance in many markets across Asia, Europe, Latin
America and the Middle East were hindered by negative sales growth in Japan
however. Foundational Markets along with High Growth Markets are
McDonalds primary focus for refranchising efforts.
2020
McDonalds records five major costs on its income statement. The Turnaround
Plan is expected to reduce total costs over time as a result of the increase in
franchised restaurants and the reduction in overhead expenses due to
innovation. This will strengthen the companys profitability margins in the years
to come and is expected to reduce the companys exposure to volatile
commodity prices, as the risk will be passed on to independent restaurant
operators.
Food & Paper Food and paper represent McDonalds largest operating cost,
accounting for 30.4% of all operating expenses in 2015. The total cost of food
and paper are dependent on commodity prices and relationships with suppliers.
The CME Cattle Futures contract LCG7 for February delivery has fallen over the
past 12 months. This is a proxy for the change in the cost of pork McDonalds
must pay to suppliers. Individual franchise owners are responsible for the costs
of operations. As McDonalds franchises more restaurants, it will reduce its
exposure to changes in commodity prices as costs are covered by restaurant
operators. We foresee the total cost of food and paper declining over the next
years which will improve profitability margins. However, we believe food and
paper as a proportion of operating expenses will remain relatively constant.
Page 5
Payroll & Employee Benefits Rising or falling wages impact the operating
margins of McDonalds. While the initiative to reduce company operated stores
will reduce total expenditures on payroll and employee benefits, we expect the
proportion of total expenses to remain flat in the next five years. This is due to
increased innovation within restaurants by means of automated registers and
further increases in efficiencies of operations. In 2015, payroll and employee
benefits accounted for 24.1% of total operating expenses. Rising minimum
wages may force restaurants to raise prices. McDonalds competitors face
similar forces, so the impact may be muted, or operating margins may decline
for the industry overall
Occupancy & Other Operating Expenses These costs include rent, taxes,
and renovation efforts. As McDonalds seeks to enhance the customer
experience by innovating and enhancing the quality of its stores, this expense
will likely increase over the next few years. McDonalds typically enters longterm real estate leases and is unlikely to see much volatility in this expense other
than from increased expenses for renovations.
SG&A Expenses McDonalds is expecting to realize net annual general and
administration savings of about $500M by the end of 2017. These savings are
a result of the Turnaround Plan and the companys efforts to operate more
efficiently. In 2015, SG&A expenses accounted for 13.33% of total operating
expenses. We foresee this proportion of total expenses declining over time and
accounting for only 8% of total expenses by 2020.
Source: IBIS World, 2016 Report
Competitive Positioning
Price to Earnings
70
50
30
10
-10
MCD
SBUX
YUM
2008
WEN
S&P
2015
Price to Sales
5
4
3
Mcdonalds still maintains significant competitive advantages despite intense

industry competition, low barriers to entry, and a feeble macro environment.
With a global presence in over 120 countries, McDonalds has essentially
established a natural hedge to market fluctuations. The company remains a
dominant player in the industry with 16.1% market share in the fast food
industry. Major improvements on menu items and customer experience surface
as key factors that will help continue to establish McDonalds as the marquee
burgers and fries quick service restaurant. Marketing efforts such as all-day
breakfast and McPick 2 offerings exemplify the companys willingness to adapt
and meet customer needs. The company has introduced self-serve kiosks and
table service. YUM! Brands, Subway, Starbucks and Wendys among others all
emerge as potential threats to McDonalds business. However, the companys
brand awareness and rising popularity amidst the proposed turnaround plan
will surely solidify McDonalds position.
Market Ratios
2
1
0
WEN
MCD
2008
YUM
2015
Price to Cash Flow

25
20
15
10
5
0
-5
WEN
MCD
2008
Source: Wharton WRDS
Price to Earnings During recessionary periods such as 2008 and throughout

expansionary periods, McDonalds displayed strong EPS based on year end
stock prices. Competitors such as YUM! Brands and Wendys show overvalued
metrics based on the market and industry P/Es. It should be noted that EPS was
not adjusted for non-recurring expenses.
Price to Sales We use year-end share prices and we divide year-end sales by
the number of common shares outstanding to determine price to sales.
Compared to its competitors, McDonalds shares trade at a premium, perhaps
reflecting stability in sales. The 2015 spike for McDonalds can probably be
attributed to the announcement of the turnaround plan.
Price to Cash Flow To compute price to cash flow ratios, we use the earningsplus-noncash-charges method. We expect McDonalds to generate stable cash
flows over the long term; hence, they appear cheap relative to their
competitors. (See Appendix O).
YUM
2015
Page 6
Turnaround Plan
70
68
66
After a dismal 2014, new management and operational practices were enacted
to set McDonalds on a new trajectory. The Turnaround Plan came into effect
in 2015 as a major change in McDonalds operational strategy. Annual G&A
spending will be reduced by $500 million on top of returning $30 billion to
shareholders for the three year period up to 2016.
Operational Growth Management restructured operating segments from
geographic to segments that illicit similar characteristics. Alterations in the menu
are manifested from changing recipes, and enhanced cooking practices to
improve quality. Improved customer service and a shifting restaurant
experience come as result of self-order kiosks and delivery services in China,
South Korea and even the U.S.
Brand Excitement Meeting customer needs is of ultimate concern to
McDonalds. All Day Breakfast serves as the main intitiative aimed at reaching
customers. Additonally, McDonalds has engaged in intiatives tailored to local
tastes such as free coffee events in Canada and menu personalisation in
Australia and the UK. Various other outreach programs are aimed at connecting
to local communities and raising awareness for humanitarian efforts.
64
Health Statistics
62
-1
60
-2
Healthy Eating Index The Healthy Eating Index is a measure of the health
of diets for Americans. Consumption metrics consist mainly of total fruit, total
vegetables, dairy, total protein foods, fatty acids, sodium and empty calories.
The survey aggregates these factors and based on the survey responses, yields
a score out of 100. Scores below 80 indicate a generally unhealthy diet. For the
past 36 years, Americans have consistently scored poorly with only a 5%
improvement in diet. With a menu consisting mainly of burgers and fries,
McDonalds should continue to see turnover in their inventory as long as the
American consumer maintains utility for fast food.
Obesity This study encompasses obesity rates in various OECD countries
across the world with respect to men and women. North American regions elicit
the highest obesity rates with between one quarter and one third of the
population considered to be obese. With an established presence in each
respective country, McDonalds will continue to see revenues grow pending any
regulatory reform in response to obesity rates.
Source: Company Proxy Statement
2020
2016
2012
2008
2004
2000
1996
1992
1988
1984
1980
Healthy Eating Index
Abs. Change
Source: USDA
Prevalence of Obesity (%)

Korea
Italy
Germany (2013)
France
Canada
Russia (2013)
Valuation
United States
0
10
Women
20
30
Men
Source: Statista
Historical Price per Share

$118
$120,000
$88
$97
$94
$122
$140
$120
$100,000
$100
$80,000
$80
$60,000
$60
$40,000
$40
$20,000
$20
$0
$0
Stock Price $
Enterprise Value ($ in millions)
$140,000
We used two valuation methods to compute the fair price of McDonalds stock:
a free cash flow to equity valuation and a dividend discount model (Gordon
Growth Model). We believe McDonalds stock is currently undervalued and the
price will rise in the future due to the effects of the Turnaround Plan and
increased dividends. In estimates of future income, we aggregated the forecasts
of different regions, with variable growth rates and cost savings due to
innovation.
Gordon Growth Model McDonalds has a long history of strong dividend
growth. In 2015, McDonalds dividend payout ratio was over 70%. Dividends
per share have risen at a compound annual growth rate of 7.6% over the past
seven years. We anticipate annual dividends to grow at 4%. Using McDonalds
cost of equity of 5.2%, our model gave us an estimated intrinsic price per share
of $135.57. This implies that McDonalds is 12.3% undervalued at a price of
$120.76. (See Appendix M).
Revenue and Earnings The impact of the Turnaround Plan will most likely
reduce revenues for McDonalds over the next several years. As part of the Plan
is geared towards refranchising stores, McDonalds stands to experience
declining revenues as fewer stores are company-operated. The benefit will
Page 7
Dividends
$7
100%
90%
$1
80%
70%
60%
50%
40%
30%
20%
10%
$0
0%
Net Income
$8,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
Free Cash Flow to Equity We used a FCFE model to obtain an intrinsic share
value of $138.23, implying that McDonalds stock is currently undervalued by
14.5%. In our model, we used a cost of equity of 6.9% based on the median
cost of equity among McDonalds and its competitors as well as a modest
terminal growth rate of 1%. We obtained a terminal EBITDA multiple of 13.4x
and divided market capitalization minus long-term debt by 779.5M, our
anticipated shares outstanding for 2016. We also used a sensitivity analysis to
obtain a range of possible prices based on various costs of equity and growth
rates which put McDonalds stock price between $123.01 and $157.01. (See
Appendix E and G).
FCF Growth Rate
$0
FCF Growth Rate
Net Income ($ in millions)
$7,000
Dividend Payout Ratio
$5.91
$5.55
$4.75
$3.42
$3.26
$2.87
$2.53
$2
$2.26
$3
$3.12
$4.31
$4
$2.05
Dividend Per Share
$5
$5.18
$6
come in the form of increasing profitability margins as McDonalds will

effectively reduce total expenses. McDonalds goal is to become 95% franchised
in the long-term which will reduce the companys exposure to market volatility
as franchised restaurant owners assume the majority of the risk associated with
operating a restaurant. McDonalds anticipates large savings in G&A as well as
increasing profitability margins from increased restructuring and innovation to
restaurants. Additionally, increased expansion efforts in High-Growth Markets
offers a crucial opportunity for McDonalds revenue and income growth. (See
Appendix B).
$107,745.85
0.90%
0.95%
1.00%
1.05%
1.10%
6.36%
118,034
119,093
120,171
121,269
122,388
Discount Rate (Cost of Equity)

6.61%
6.86%
7.11%
111,743
105,997
100,730
112,699
106,864
101,519
113,672
107,746
102,321
114,663
108,643
103,136
115,671
109,555
103,965
7.36%
95,886
96,606
97,338
98,081
98,836
Fair Value per Share Analysis

$107,745.85
6.36%
6.61%
6.86%
7.11%
7.36%
0.90%
$151.43
$143.36
$135.98
$129.23
$123.01
0.95%
$152.78
$144.58
$137.10
$130.24
$123.94
1.00%
$154.17
$145.83
$138.23
$131.27
$124.87
1.05%
$155.58
$147.10
$139.38
$132.31
$125.83
1.10%
$157.01
$148.39
$140.55
$133.38
$126.80
Fair Market Value:

Source: Company 10Q and Proprietary Forecast
Equity Value (Market Cap):

Market Cap - Expected 2020 LT Debt
Diluted Shares Outstanding:
Fair Value per Share:
$135,367.95
$107,745.85
779.48
$138.23
Profitability and Key Metrics McDonalds is expecting to increase

profitability margins throughout the course of refranchising efforts. While the
long-term impact of the Turnaround Plan is unpredictable, we believe the shortterm impact will significantly increase operating and EBITDA margins. With the
increase in leverage, total debt and net debt to EBITDA ratios will increase in
the short term. However, as McDonalds slowly pays off this debt, these ratios
will fall in line with historical metrics. Future Price to Equity ratios in the image
above are assuming the current price of $120.76 remains constant. Additionally,
we anticipate a drastic increase in earnings per share over the next 5 years,
attributed to further share repurchases and increasing earnings due to
improving operating margins and a reduced corporate tax rate.
Page 8
McDonald's Corporation
Key Metrics
Profitability
Operating Margin
EBITDA Margin
Return on Sales
Return on Assets
2012A
31.2%
36.6%
19.82%
15.44%
2013A
31.2%
36.8%
19.87%
15.25%
2014A
29.0%
35.0%
17.34%
13.90%
2015A
28.1%
34.2%
17.82%
11.94%
2016E
31.5%
37.5%
18.34%
15.65%
2017E
34.6%
40.6%
21.70%
17.77%
2018E
37.8%
43.8%
25.43%
20.19%
2019E
40.9%
46.9%
28.08%
22.02%
2020E
44.0%
50.0%
30.85%
22.57%
Liquidity
Current Ratio
Cash Ratio
1.45
0.69
1.59
0.88
1.52
0.76
3.27
2.60
0.49
(0.21)
0.62
(0.08)
0.76
0.05
0.80
0.08
1.67
0.94
Financial Leverage
Total Debt / EBITDA
Net Debt / EBITDA
Debt-Equity Ratio
1.35
1.12
0.89
1.37
1.09
0.88
1.56
1.34
1.16
2.77
1.89
3.40
2.90
2.96
N/A
2.87
2.89
N/A
2.67
2.65
N/A
2.27
2.25
N/A
2.02
1.82
9.67
Shareholder Ratios
P/E Ratio
Earnings per Share
Dividend Yield
16.47
$5.36
53.0%
3.22%
17.47
$5.55
55.8%
3.19%
19.42
$4.82
67.6%
3.48%
24.64
$4.79
71.3%
2.89%
20.36
$5.98
72.1%
3.54%
16.85
$7.23
65.8%
3.91%
14.11
$8.63
60.0%
4.25%
12.59
$9.67
57.4%
4.56%
11.27
$10.80
54.7%
4.85%
Investment Risks
Economic With the anticipated global restructuring and rapid refranchising,
Source: Statista
Source: USDA NAS
Source: Statista
the company has pursued debt financing to initiate this turnaround plan. With
the company borrowing mostly on a long-term basis, they are exposed to
interest rate changes and currency fluctuations which will be elaborated further
later on. With an established global presence, McDonalds heavily relies on
franchisees ability to grow sales and manage the day to day operations. With
the refranchising efforts expanding to roughly 95% of company stores,
revenues and margins rely on the entrepreneurs ability to respond to economic
conditions and market tastes. During cyclical downturns, bankruptcies among
quick service restaurants increase. Fluctuations in agricultural prices expose
franchisees to uncertain costs thus affecting profitability. Furthermore, uncertain
consumer spending behaviors will adversely affect the companys ability to
generate revenues. Competition within this industry remains very high and will
play out through price wars and consistent introduction of new menu items in
order to meet customer needs.
Regulatory Disruptions in operations or price volatility can arise from price and
import-export controls, increased tariffs and government mandated closures of
franchisees restaurants. Increasing minimum wages and employee benefits in
global markets in turn will decrease margins and force potential layoffs within
the quick service restaurant industry. With regards to nutrition, the FDA has
made efforts to mandate nutritional info on menus and to implement the
Affordable Care Acts provision to provide calorie information. Franchising is
regulated by the US Federal Trade Commission at the federal level and by
various state agencies on the state level. Franchisees must adhere to three laws:
disclosure laws, registration laws, and relationship laws. With McDonalds
significant refranchising efforts, any complications within this legal framework
could disrupt the companys projected turnaround plan.
Market The Company is exposed to global markets risk, specifically changes in
interest rates and foreign currency fluctuations. McDonalds uses derivatives in
order to effectively hedge these risks. As of September 30th 2016, McDonalds
recorded $9.7 million in derivative assets compared to $60.9 million at year end
2015. McDonalds also hedges fair value that convert portions of fixed-rate
floating debt into floating-rate debt through the use of interest rate swaps. (See
Appendix J). Within the credit markets, McDonalds relies heavily on creditrating agencies to assign short and long term credit ratings In order to access
debt capital financing. In a low interest rate environment, global central banking
policy show hawkish symptoms with potential rate hikes facing the US in the
short term.
Page 9
Revenue and Profit Margin

30,000
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
25,000
20,000
15,000
10,000
5,000
-
Revenue
Other Negative publicity and anti-American sentiment amongst

consumers will constrain McDonalds ability to grow globally. Political
risk exposes the company given McDonalds presence in over 120
countries. Political unrest and instability may force McDonalds to shut
down operations in particular regions. Health initiatives aimed at
improving the diets of consumers will challenge McDonalds to re-visit
marketing efforts and adapt menu items. Industry players that
incorporate a wider range of healthy menu items ultimately will stand
out and cater to the rising health consciousness of the world.
Profit Margin
Investment Summary
Profitability With the proposed plan to refranchise 4,000 restaurants through 2018, the company anticipates higher
operating profit margins while yielding stable cash flows. With the franchise business model in place, the company can
rely on local entrepreneurs to support top line growth while collecting rents, royalties and initial fees.
Innovation McDonalds system-wide operations offer a vertically integrated structure with adapting business practices.
Continuing to innovate and deliver an engaging restaurant experience for customers all stem from the companys ability
to implement creative and impactful ideas. Self-serve kiosks, table service and a refined menu all lend to improvements
in the customer experience with the ultimate goal of being a modern and progressive burger company.
Restructuring The ensuing result of reshaping the companys business model can be observed in the chart above.
While McDonalds anticipates earning lower revenues over the subsequent years, the restaurant chain will in turn
increase profitability. With net annual G&A savings of approximately $500 expected from a base of $2.6 billion to be
realized by the end of 2017, the restaurant will thoroughly improve upon efficiencies. The restaurant will also
boost capital expenditures by approximately $2.0 billion split between new restaurant openings and reinvesting in
existing locations.
Page 10
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that
might bias the content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject
company.
Market making:
The author(s) does not act as a market maker in the subject companys securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by
the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its
accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person
or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell
any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Society of
Chicago, CFA Institute or the CFA Institute Research Challenge with regard to this companys stock.
Page 11
Appendices
Appendix A: Beta regression of S&P 500 and MCD with competitor betas
Company Name
McDonald's
Yum Brands
Wendy's
Ticker
MCD
YUM
WEN
1-Yr Beta
0.644
1.188
1.111
3-Yr Beta
0.553
0.937
0.877
5-Yr Beta
0.599
0.884
0.783
7-Yr Beta
0.527
0.842
0.845
Ave. Beta
0.581
0.963
0.904
Beta Regression: S&P 500 & MCD

8.0%
6.0%
4.0%
MCD US Equity Returns
2.0%
7-Yr Beta
0.0%
3-Yr Beta
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
S&P 500 Returns
Appendix B: McDonalds Income Statement

Income Statement
(All figures in millions, except per share data)
Fiscal
Sales by company-operated restaurants
Revenues from franchised restaurants
Total Revenue
Food & paper
Payroll & employeee benefits
Occupancy & other operating expenses
Franchised restaurant-occupancy expenses
SG&A Expenses
Other operating (income) expense, net
Total Operating Costs and Expenses
Operating Income (EBIT)
Interest Expense
Nonoperating (income) expense, net
Income Before Provision for Income Taxes
Provision for income taxes
Net Income
Diluted Shares Outstanding
Diluted earnings per share
Weighted-average shares outstanding - diluted
EBITDA
EBITDA Margin
Actual
2014
$ 18,169
9,272
27,441
6,130
4,756
4,403
1,697
2,488
19
19,492
7,949
576
1
7,372
(2,614)
4,758
2013
$ 18,874
9,232
28,106
6,361
4,824
4,393
1,624
2,386
(247)
19,341
8,764
528
32
8,205
(2,619)
5,586
1,006
5.55
1,006
10,349
37%
986
4.82
986
9,594
35%
2015
$ 16,488
8,925
25,413
5,552
4,400
4,025
1,647
2,434
209
18,268
7,146
638
(49)
6,556
(2,026)
4,529
945
4.79
945
8,701
34%
Estimated
2016
$ 15,341
10,061
25,402
5,296
4,144
3,896
1,735
2,179
150
17,400
8,002
1,306
(49)
6,744
(2,085)
4,660
779
5.98
779
9,526
38%
Projected
2018
2019
$ 12,284
$ 11,043
11,536
12,385
23,821
23,428
4,490
4,181
3,410
3,119
3,415
3,242
1,794
1,846
1,567
1,307
150
150
14,826
13,846
8,995
9,583
1,471
1,407
(49)
(49)
7,572
8,225
(1,514)
(1,645)
6,058
6,580
2017
$ 13,707
10,764
24,471
4,857
3,748
3,631
1,757
1,855
150
15,997
8,474
1,442
(49)
7,081
(1,770)
5,310
735
7.23
735
9,942
41%
702
8.63
702
10,424
44%
681
9.67
681
10,988
47%
2020
$ 9,958
13,320
23,278
3,922
2,866
3,105
1,916
1,066
150
13,025
10,253
1,324
(49)
8,978
(1,796)
7,182
665
10.80
665
11,650
50%
Page 12
Appendix C: McDonalds Balance Sheet

Balance Sheet
($ in millions)
Actual
2017
Projected
2018
2019
2020
$ (588)
1,298
95
558
1,364
39,492
(16,099)
23,394
2,315
899
1,807
5,020
29,777
$ (223)
1,251
88
538
1,653
40,961
(17,567)
23,394
2,129
899
1,807
4,835
29,882
$ 128
1,217
81
524
1,951
42,390
(18,996)
23,394
1,959
899
1,807
4,664
30,009
$ 194
1,197
76
515
1,982
43,796
(20,402)
23,394
1,802
899
1,807
4,508
29,883
$ 2,292
1,190
71
512
4,065
45,192
(21,799)
23,394
1,658
899
1,807
4,363
31,821
875
1,379
233
155
309
2,950
708
1,378
233
155
309
2,783
663
1,328
224
149
298
2,662
609
1,292
218
145
290
2,555
572
1,271
215
143
285
2,485
536
1,263
214
142
283
2,438
14,936
1,625
2,066
21,374
24,122
1,704
2,074
30,851
27,622
1,704
2,073
34,182
28,557
1,641
1,997
34,858
27,802
1,598
1,944
33,898
24,958
1,571
1,912
30,926
23,494
1,561
1,900
29,393
TOTAL SHAREHOLDERS' EQUITY
12,853
7,088
(4,404)
(4,976)
(3,890)
(1,043)
2,429
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY
34,227
37,939
29,777
29,882
30,009
29,883
31,821
Fiscal
ASSETS
Current Assets
Cash and equivalents
Accounts and notes receivable
Inventories, at cost, not in excess of market
Prepaid expenses and other current assets
Total Current Assets
Property and equipment, at cost
Accumulated depreciation and amortization
Net PPE
Goodwill
Investments in and advances to affiliates
Miscellaneous
Total Other Assets
TOTAL ASSETS
2014
2015
$ 2,078
1,214
110
783
4,186
39,126
(14,569)
24,558
2,735
1,005
1,745
5,484
34,227
$ 7,686
1,299
100
559
9,643
37,692
(14,575)
23,118
2,516
793
1,869
5,178
37,939
LIABILITIES
Current Liabilities
Accounts Payable
Accrued payroll and other liabilities
Accrued interest
Income taxes
Other Taxes
Total Current Liabilities
860
1,157
234
167
330
2,748
Long-Term Debt
Deferred Income Taxes - noncurrent
Other Long-term Liabilities
TOTAL LIABILITIES
Estimated
2016
Page 13
Appendix D: McDonalds Cash Flow Statement estimates
Cash Flow Statement and Simplified Debt & Interest Schedule
($ in millions)
Estimated
2016
2017
Projected
2018
2019
2020
$ 4,660
1,524
$ 5,310
1,468
$ 6,058
1,429
$ 6,580
1,406
$ 7,182
1,397
162
6,346
45
6,824
54
7,541
36
8,021
32
8,611
(1,800)
(40)
600
(120)
(1,360)
(1,468)
660
(60)
(868)
(1,429)
726
(67)
(770)
(1,406)
799
(82)
(689)
(1,397)
878
(70)
(588)
500
4,500
(1,000)
(14,200)
(3,360)
300
(13,260)
500
2,000
(1,065)
(3,831)
(3,494)
300
(5,590)
500
1,000
(1,755)
(2,831)
(3,634)
300
(6,419)
500
1,000
(3,844)
(1,831)
(3,779)
300
(7,654)
500
1,000
(2,464)
(1,331)
(3,930)
300
(5,925)
Cash Available / (Required) Before Debt

Less: Mandatory Debt Repayment
Plus: LT financing issuances
ST Borrowings
Beginning Cash Balance
(8,274)
(1,000)
4,500
500
7,686
366
(1,065)
2,000
500
(588)
351
(1,755)
1,000
500
(223)
(322)
(3,844)
1,000
500
128
2,098
(2,464)
1,000
500
194
Cash Available / (Required) Before Sweep
3,412
1,212
(127)
(2,538)
1,328
Total Cash From Financing Activities after Debt
(1,574)
(4,155)
(6,674)
(9,998)
(6,889)
Beginning Cash Balance

Change in Cash
Ending Cash Balance
Average Cash Balance
7,686
(8,274)
(588)
3,549
(588)
366
(223)
(406)
(223)
351
128
(47)
128
(322)
(194)
(33)
194
2,098
2,292
1,243
Total Debt Beginning Balance

Change in Debt
Total Debt Ending Balance
Average Debt Balance
24,122
4,000
28,122
26,122
29,557
(255)
29,302
29,430
29,302
(2,344)
26,958
28,130
Fiscal
Cash From Operating Activities:
Net Income
Plus: Depreciation & Amortization
Changes in Working Capital:
Total Change in Working Capital
Total Cash From Operating Activities
Cash For Investing Activities:
Capital Expenditures
Purchases of Restaurant Businesses
Sales of Restaurant Businesses and Property
Other
Total Cash For Investing Activities
Cash For Investing Activities:
Net Short-term borrowings
Long-term financing issuances
Long-term financing repayments
Treasury stock purchases
Common Stock Dividends
Proceeds from stock option exercises
Total Cash For Financing Activities
3,115.00
28,122
1,435
29,557
28,840
26,958
(964)
25,994
26,476
Page 14
Appendix E: McDonalds Free Cash Flow to Equity Valuation
Financial Projections - Free Cash Flow Equity (FCFE) Valuation

McDonald's
Fiscal Year Ending: December 31
Fiscal Year Ending ($ in millions)

Revenue
EBIT
Depreciation and Amortization
EBITDA
Capital Expenditures
Changes in Working Capital Requirements
2014A
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
$27,441
7,949
1,645
9,594
(2,583)
(64)
$25,413
7,146
1,556
8,701
(1,814)
17
$25,402
8,002
1,524
9,526
(1,800)
162
$24,471
8,474
1,468
9,942
(1,468)
45
$23,821
8,995
1,429
10,424
(1,429)
54
$23,428
9,583
1,406
10,988
(1,406)
36
$23,278
10,253
1,397
11,650
(1,397)
32
Discounted Cash Flow (DCF) Analysis

Forward Estimates
Fiscal Year Ending ($ in millions, except per share da
2015A
Revenue
Revenue Growth %
EBIT
Less: Taxes
Debt-Free Earnings
Less: Capital Expenditures
Less: Working Capital Requirements
Add: Depreciation and Amortization
Net Investment
Unlevered Free Cash Flow:
Discount Period
Discount Factor @ 6.9%
PV of Net Debt-Free Cash Flows:
$25,413
$7,146
(2,026)
$5,119
2016E
2017E
2018E
2019E
2020E
$25,402
0.0%
$8,002
(2,085)
$5,917
(1,800)
(162)
1,524
($438)
$5,479
0.0
1.00
$5,479
$24,471
-3.7%
$8,474
(1,770)
$6,704
(1,468)
(45)
1,468
($45)
$6,659
1.0
0.94
$6,232
$23,821
-2.7%
$8,995
(1,514)
$7,481
(1,429)
(54)
1,429
($54)
$7,427
2.0
0.88
$6,504
$23,428
-1.6%
$9,583
(1,645)
$7,938
(1,406)
(36)
1,406
($36)
$7,902
3.0
0.82
$6,476
$23,278
-0.6%
$10,253
(1,796)
$8,458
(1,397)
(32)
1,397
($32)
$8,426
4.0
0.77
$6,462
Appendix F: McDonalds Adjusted Highlights
Mcdonalds Corporation
Adj. Highlights
(All figures in millions, except per share data)
Estimated
2016
Fiscal
2009
2010
2011
2012
2013
2014
2015
Net Sales, Adj.

Growth %, YoY
Gross Profit, Adj.
Margin %
EBITDA, Adj.
Margin %
Net Income, Adj.
Margin %
EPS, Adj.
Growth %, YoY
22,744.7
24,074.6
5.8%
7,473.1
31.0%
8,749.3
36.3%
4,946.3
20.5%
4.58
11.4%
27,006.0
12.2%
8,529.7
31.6%
9,944.7
36.8%
5,503.1
20.4%
5.27
15.0%
27,567.0
2.1%
8,604.6
31.2%
10,093.1
36.6%
5,464.8
19.8%
5.36
1.7%
28,105.7
2.0%
8,764.3
31.2%
10,349.4
36.8%
5,585.9
19.9%
5.55
3.7%
27,441.3
-2.4%
7,949.2
29.0%
9,593.7
35.0%
4,757.8
17.3%
4.82
-13.1%
25,413.0
-7.4%
7,145.5
28.1%
8,701.2
34.2%
4,529.3
17.8%
4.79
-0.6%
800
394
6,841.0
30.1%
8,057.2
35.4%
4,551.0
20.0%
4.11
-
25,401.6
0.0%
8,001.8
31.5%
9,525.9
37.5%
4,659.5
18.3%
5.98
24.7%
2017
Projected
2018
2019
2020
24,471.3
-3.7%
8,474.0
34.6%
9,942.3
40.6%
5,310.4
21.7%
7.23
20.9%
23,820.8
-2.7%
8,995.2
37.8%
10,424.4
43.8%
6,057.8
25.4%
8.63
19.4%
23,277.8
-0.6%
10,253.2
44.0%
11,649.9
50.0%
7,182.3
30.9%
10.80
11.7%
23,428.5
-1.6%
9,582.5
40.9%
10,988.2
46.9%
6,579.6
28.1%
9.67
12.0%
Appendix G: McDonalds WACC and Rate Calculation

Equity
Levered
Unlevered
Risk
Cost of
Cost of
Cost of
Beta
Beta
Prem ium
Equity
Debt
Preferred
WACC
McDonald's
0.58
0.48
5.0%
5.2%
2.2%
0.0%
4.5%
YUM! Brands
0.96
0.75
5.0%
7.2%
2.6%
0.0%
5.8%
Wendy's
0.90
0.58
5.0%
6.9%
3.1%
0.0%
5.0%
Median
0.90
0.58
6.9%
2.6%
0.0%
5.0%
Mean
0.82
0.60
6.4%
2.6%
0.0%
5.1%
Page 15
Appendix H: Revenue
U.S. Market
International Lead
Markets
High-Growth
Markets
Foundational
Markets and
Corporate
TOTAL
Franchised/Affiliate
Restaurants
13,047
5,703
2,882
9,321
30,953
Total Revenue ($M)
$3,363
$2,202
$581
$805
$6,951
% of All Sales
18.1%
11.8%
3.1%
4.3%
37.4%
$257,776
$386,078
$201,457
$86,386
$224,566
1,130
1,105
2,488
939
5,662
Total Revenue ($M)
$2,852
$3,251
$4,064
$1,476
$11,643
% of All Sales
15.3%
17.5%
21.9%
7.9%
62.6%
$2,523,894
$2,941,810
$1,633,240
$1,571,885
$2,056,341
45.6%
39.0%
17.5%
-0.1%
31.1%
Nine Months Ended

September 30, 2016
Average Sales per

Restaurant ($M)
Company Operated
Restaurants
Average Sales per

Restaurant ($M)
Operating Income
Margin, All Restaurants
Appendix I: SWOT Analysis

Strengths
Worlds largest food chain: McDonalds greatest strength is their global presence. There are over 36,000
restaurants world-wide with over 22,000 of them internationally located. Their largest market is the United
States which consist of 34% of global revenue. MCDONALDS biggest markets outside the United States are
Australia, Canada, France, Germany, and the U.K. which, together, account for 30% of global revenue.
McDonalds is in 122 countries which provides geographical diversification. The corporation, notably, owns
much of the land their restaurants are built on, and rents out their real estate to franchisees. It has been
estimated by the Wall Street Journal the market value of McDonalds real estate to be upwards $1 Billion. From
the size of the corporation, McDonalds brand worth is $88.7 billion. Their closest competitor, in terms of global
brand value, is Starbucks which accounts to about half of McDonalds value at $43.6 billion.
Low cost menu: With bundled offerings, such as the McPick 2 menu, McDonalds achieves their cost
advantage by utilizing economies of scale. This means savings are proportionate to increased levels of
production. As McDonalds increases in size, costs will be mitigated and allow pricing to be increasingly
competitive. Additionally, a low pricing strategy has proven to weather economic downturns. During the Great
Recession of the United States, McDonalds stock experienced gains and their revenues increased. In February
of 2009, United States same-store sales rose 6.8%. McDonalds has figured price points which sell in poor
economic conditions to keep revenue generation in all economic periods.
Technological innovation: McDonalds is on the forefront of innovation in the QSR industry. The company stays
ahead of the curve by catering to consumer tastes and enhancing the customer experience. McDonalds
launched self-serve kiosks and table service in 500 United States locations. This innovation has made the food
ordering and delivery process more efficient and effective for their restaurants. McDonalds is also innovating
their food products through implementing consumer preferences. In an age of increased health watchers,
Nielsen, a well-established market research group, shows that all generations are willing to pay for healthier
foods; some 88% of those who were polled in 2015 are willing to take the premium. McDonalds has cut
artificial preservatives from Chicken McNuggets, removed high-fructose corn syrup from buns, and has
committed to only serving cage-free eggs by 2025.
Page 16
Weaknesses
Law suit of over pricing In December of 2016, Chicagoan James Gertie filed a class-action law suit against
McDonalds in 2 Illinois counties for charging $0.41 more for their Extra Value Meal when compared to
purchasing the same items a la carte. In the same month, Kelly Killeen filed a similar claim in reference to
McDonalds Sausage Burrito Extra Value Meal. She filed a law suit claiming the meal was being charged $0.11
more than if the items were charged individually. These actions have hindered consumer trust with pricing as a
competitive advantage for the company. Their prices drive traffic, and notice of their bundles not being a deal
has left consumers feeling cheated.
Opportunities
China: Citic, a large Chinese financial firm, is to take the majority of McDonalds ownership in mainland China
and Hong Kong. McDonalds will still hold a 20% stake in the deal which is worth upwards of $2.1 billion. The
move of a partnership is to fully understand the Chinese market, not to pull back from it. In the next 5 years,
the partners are aiming to open 1,500 new restaurants in China and Hong Kong. A focus of bringing the
corporation to smaller Chinese cities will be held.
Social responsibility: Coming out of some of the most difficult economic climates in the previous 100 years,
people are more willing to pay more for sustainable products. Nielsen survey in 2015 shows 70% of global
participants are willing to pay more for products which are known for their wellness benefits and 69% of
participants are willing to pay more for products which are from fresh and natural ingredients. There is a global
shift occurring which is accounting for better health and higher social responsibility. McDonalds can capitalize
on these strong consumer sentiments by shifting their products and brand to the wants and attractiveness of
consumers.
Threats
FDA regulation: The Food and Drug Administration of the United States is adapting and tightening regulation
for the QSR industry. Starting in 2017 restaurants are required to place the calorie count of the foods they are
serving next to the name or the price of the item on their menu. This law national law hopes to push people to
choose healthy food options. Also, the calorie count must over estimate, and never underestimate, if there is a
discrepancy in the nutrition reporting. For example, if McDonalds sources their chicken meat, for Chicken
McNuggets, from two different regions and must use the fattier meat source when posting calorie count on
their menu. In an environment where people are considering healthier diet options, this can hurt McDonalds
since their calorie counts are on a high end when considering a normal 2,000 calorie diet; a Big-Mac Meal
consists of 1,080 calories.
Appendix J: Debt Obligations
In millions of U.S. Dollars
Interest rates
December 31
Maturity dates
Fixed
Floating
Total U.S. Dollars
2015
2014
4.00%
4.50%
3.30%
3.20%
2016-2045
Fixed
Floating
2.40%
3.20%
0.30%
2.90%
2015
14,190.60
2014
6,604.70
3,019.60
2,450.00
17,210.20
9,054.70
3,951.90
3,014.70
665.90
320.30
3,335.00
5.30%
1,100.10
1,163.30
5.60%
491.80
630.10
2.90%
2.90%
104.00
104.30
0.30%
0.30%
208.00
208.60
312.00
312.90
2016-2029
Total British Pounds Sterling - Fixed
2020-2054
5.30%
2016
4.30%
Fixed
Floating
Total Japanese Yen
December 31
4,617.80
Total Euro
Total Chinese Renminbi - Floating
Amounts outstanding
2016-2030
Fixed
2.10%
2.10%
264.70
268.30
Floating
3.10%
4.00%
229.70
220.70
494.40
489.00
Total other currencies

Total debt obligations
2016-2056
$ 24,122.10 $ 14,935.70
Page 17
Appendix K: Revenue Forecast by Market

Revenue Breakdown
Company Operated
U.S.
International Lead Markets
High-Growth Markets
Foundational Market and Corporate
Total Revenue
Franchised and Affiliates
U.S
High-Growth Markets
Total Franchised, Developmental Licensee
and Affiliates Revenue
Systemwide Revenue
U.S.
High-Growth Markets
Total Systemwide Revenue
2013
2014
2015
9/31/2016
2016
2017
2018
2019
2020
4,512
5,513
6,322
2,528
18,875
4,351
5,443
6,071
2,304
18,169
4,198
4,798
5,442
2,050
16,488
2,852
3,251
4,064
1,476
11,642
3,383
4,359
5,610
1,988
15,341
2,850
3,849
5,353
1,655
13,707
2,401
3,399
5,107
1,377
12,284
2,023
3,002
4,872
1,146
11,043
1,704
2,651
4,649
954
9,958
4,339
3,023
721
1,148
4,300
3,101
774
1,097
4,361
2,817
731
1,016
3,363
2,202
581
805
4,492
3,375
1,017
1,176
4,624
3,700
1,187
1,253
4,759
4,056
1,386
1,336
4,898
4,446
1,618
1,423
5,041
4,874
1,888
1,517
9,231
9,272
8,925
6,951
10,061
10,764
11,536
12,385
13,320
8,851
8,536
7,043
3,676
28,106
8,651
8,544
6,845
3,401
27,441
8,559
7,615
6,173
3,066
25,413
6,215
5,453
4,644
2,281
18,593
7,875
7,734
6,627
3,164
25,402
7,474
7,549
6,540
2,908
24,471
7,160
7,455
6,493
2,713
23,821
6,920
7,448
6,490
2,570
23,428
6,745
7,525
6,537
2,471
23,278
Appendix L: Restaurant Forecast by Market

Total Restaurants by Market
United States
Franchises/Affiliates
Company Operated
Total U.S. restaurants
2013
2014
2015
9/31/2016
2016
2017
2018
2019
2020
12,739
1,539
14,278
12,836
1,514
14,350
12,899
1,360
14,259
13,047
1,130
14,177
13,080
1,129
14,208
13,263
937
14,200
13,448
778
14,226
13,637
645
14,282
13,828
536
14,363

Company Operated
Total International Lead Market restaurants
5,250
1,354
6,604
5,381
1,336
6,717
5,573
1,229
6,802
5,703
1,105
6,808
6,019
1,069
7,088
6,500
930
7,431
7,020
809
7,830
7,582
704
8,286
8,189
613
8,801
High-Growth Markets
Company Operated
Total High-Growth Market restaurants
1,848
2,791
4,639
2,832
2,199
5,031
2,839
2,427
5,266
2,882
2,488
5,370
3,265
2,281
5,546
3,755
2,144
5,899
4,318
2,016
6,334
4,965
1,895
6,860
5,710
1,781
7,491
8,854
1,054
9,128
1,032
9,182
1,016
9,321
939
9,641
884
10,123
725
10,629
594
11,161
487
11,719
400
9,908
10,160
10,198
10,260
10,525
10,848
11,224
11,648
12,118
Foundational Markets and Corporate

Company Operated
Total Foundational Market and Corporate
restaurants
Systemwide
Company Operated
Total Systemwide
28,691
6,738
35,429
30,177
6,081
36,258
30,493
6,032
36,525
30,953
5,662
36,615
32,004
5,363
37,368
33,641
4,736
38,377
35,416
4,197
39,613
37,345
3,732
41,077
39,445
3,329
42,774
Appendix M: Gordon Growth Model

Financial Projections - Gordon Growth Model (DDM) Valuation
Fiscal Year Ending: December 31
($ in millions, except per share data)

Revenue
Stock Mark et Price
EBIT
EBITDA
Normalized Earnings
Diluted Common Shares
Diluted Earnings Per Share
P/E Ratio
Dividends
Dividend per Share
Dividend Yield %
Dividend Growth
Dividend per Share Growth
Gordon Growth Model Value
Implied Growth Rate
Cost of Equity
2009A
2010A
2011A
2012A
2013A
2014A
2015A
$22,745
$62
$6,841
$8,057
$4,551
1,107.40
$4.11
15.2x
2,235.00
$2.05
49.9%
3.3%
-
$24,075
$74
$7,473
$8,749
$4,946
1,080.30
$4.58
16.1x
2,408.00
$2.26
49.3%
3.1%
7.7%
10.24%
$27,006
$100
$8,530
$9,945
$5,503
1,044.90
$5.27
19.0x
2,610.00
$2.53
48.0%
2.5%
8.4%
11.95%
$27,567
$88
$8,605
$10,093
$10,693
1,020.20
5.36
16.5x
2,897.00
$2.87
53.5%
3.3%
11.0%
13.44%
$28,106
$97
$8,764
$10,349
$5,586
1,006.00
5.55
17.5x
3,115.00
$3.12
56.2%
3.2%
7.5%
8.71%
$27,441
$94
$7,949
$9,594
$4,758
986.30
4.82
19.4x
3,216.00
$3.26
67.6%
3.5%
3.2%
4.51%
$25,413
$118
$7,146
$8,701
$4,529
944.60
4.79
24.6x
3,230.30
$3.42
71.3%
2.9%
0.4%
4.88%
2016E
2017E
2018E
2019E
2020E
$25,402
$24,471
$23,821
$23,428
$23,278
$8,002
$9,526
$4,660
779.48
5.98
0.0x
3,359.51
$4.31
72.1%
#DIV/0!
4.0%
26.03%
$135.57
$8,474
$9,942
$5,310
734.94
7.23
0.0x
3,493.89
$4.75
65.8%
#DIV/0!
4.0%
10.30%
$149.54
$8,995
$10,424
$6,058
702.03
8.63
0.0x
3,633.65
$5.18
60.0%
#DIV/0!
4.0%
8.88%
$162.81
$9,583
$10,988
$6,580
680.74
9.67
0.0x
3,778.99
$5.55
57.4%
#DIV/0!
4.0%
7.25%
$174.62
$10,253
$11,650
$7,182
665.27
10.80
0.0x
3,930.15
$5.91
54.7%
#DIV/0!
4.0%
6.42%
$185.83
4.0%
5.2%
Page 18
Appendix N: Household Utility for Fast Food 2008 and 2015
Page 19
Appendix O: Market Ratios Cont.

Return on Equity Within a full business cycle, McDonalds has
yielded an average ROE of 36%. Other competitors such as
Starbucks, Wendys, and Quick Service Restaurants yielded
average ROEs of 24%, 5%, and 10% respectively.
Return on Assets ROA was calculated using after tax interest
plus net income divided by total assets. McDonalds yielded an
average ROA of 15% throughout one business cycle.
Competitors such as Starbucks, YUM! Brands, and Wendys
yielded 13%, 16%, 1% respectively.
Return on Capital Return on capital was calculated taking
after tax interest and net income and dividing it by total debt
and stockholders equity. McDonalds yielded an average ROC
of 19%. Starbucks, YUM! Brands, and Wendys yielded an
average ROC of 20%, 28%, and 2% respectively.
Long Term Debt McDonalds significantly levered up in 2015
to a 77% Long Term Debt Ratio. McDonalds, Starbucks, YUM!
Brands, and Wendys each yield average LTDRs of 48%, 18%,
70%, and 48% between 2008 and 2015.
Asset Turnover The asset turnover ratio was calculated taking sales divided by total assets at the end of the year, which
in turn indicates how much sales volume is generated by each dollar of total assets. McDonalds recorded an average
asset turnover of 77% from 2008 to 2015. Starbucks, YUM! Brands, and Wendys each recorded asset turnovers of 160%,
152% and 56% respectively.
Receivables Turnover Receivables turnover was calculated taking sales divided by receivables at the beginning of the
year. McDonalds recorded an average receivables turnover of 21 between 2008 and 2015. Starbucks, YUM! Brands and
Wendys recorded turnovers of 30, 35, and 34 respectively.
Inventory Turnover Inventory turnover was calculated using cost of goods sold divided by total inventory. McDonalds
recorded an average inventory turnover of 126 from 2008 to 2015. Starbucks, YUM! Brands and Wendys recorded values
of 11, 41, and 167 respectively.
Current Ratio The current ratio was calculated by dividing current assets over current liabilities. McDonalds recorded
an average current ratio of 1.54 between 2008 and 2015. During this same period, Starbucks, YUM! Brands, and
Wendys recorded values of 1.37, 0.75, and 2.15 respectively.
Page 20
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