Illinois Institute of Technology Takes Top Prize in Chicago’s Local Level Final of the CFA Institute Research Challenge

DSC_2393The CFA Institute Research Challenge is an annual global competition for university students who assume the role of a research analyst. This multi-round competition provides hands-on mentoring and intensive training in financial analysis. Students value a stock, write an initiation-of-coverage report, and present their recommendations to a panel of judges, each of whom is a Charterholder and a highly regarded industry professional. Chicago’s Local Level Finals was held on February 5th and included five teams from local universities. The winning team advanced to the Americas Regional Finals, which will be held the week of April 11th in Chicago.

Each team had 10 minutes to present their reports on Mead Johnson Nutrition which sells nutritional products for infants and toddlers across the globe. The firm sells most of its products in the United States and China and primarily focuses on infant formula. The teams were given wide latitude to use any financial modeling and business analysis tools they believed to be most appropriate to generate a target price and to make a buy/sell/hold recommendation on the stock. Following the presentation, the judges had 10 minutes to ask the teams questions about their research process and the results. Teams were assigned colors to disguise their university affiliations.

DSC_2477The Purple Team (Illinois Institute of Technology) went first, focusing on Mead Johnson’s brand loyalty among customers as well as the growing Asian market. A detailed projection of the firm’s financials and a SWOT analysis were among the modeling tools used to determine a target price of over $93 and to issue a Buy recommendation on the shares. Drivers of their positive view included the lifting of China’s one-child policy, a strong brand presence in the U.S. and Asia, good customer loyalty, extensive supply chain and distribution channels, a robust financial position, and their belief that  the firm’s introduction of more premium priced products would add to the bottom line.

DSC_2483Next, the Blue Team (University of Illinois at Chicago) issued a Hold rating with a target price of $76. Positives for the firm according to this team were the lifting of the one-child policy in China, low dairy costs, and high brand loyalty, but they had concerns about downward currency pressures on the Yuan. The group’s valuation analysis combined a discounted cash flow analysis with relative comps among similar firms, including price to earnings data. They also included a scenario analysis, focusing on currency movements. In all, they believe that Latin America and Asia have strong growth potential for the firm, but have concerns about currency headwinds.

DSC_2468Team Orange (University of Illinois at Urbana–Champaign) also issued a Hold rating with a target price of $78. They pointed to China’s one-child policy as a potential positive, but noted that a rise in breastfeeding could put pressure on the firm’s sales. The team noted that revenues and EBITDA have been growing, but the rate of growth has slowed. They also pointed to volatile currency movements as a risk factor for the firm. Multiple valuation models were used, including comparing similar segments of competitors and Monte Carlo simulation to generate a price target range. Finally, they used discounted cash flow models to pinpoint their target price.

DSC_2471The Gold Team (Loyola University Chicago) was decidedly more positive on the firm, issuing a Buy recommendation at $83, but noted that this recommendation was an upgrade from their initial Hold based on recent share price decline. The team determined that industry rivalry was a critical factor for the firm to contend with and pointed to a new contract with the U.S.’s WIC program which will help the firm’s products gain more shelf space in those markets. Valuation models used by the group included discounted cash flow, multiples valuation, and dividend discount. Before closing, the team noted the firm faced some head winds including commodity prices, foreign exchange risk, and a slowdown in China.

DSC_2475The final team, Brown (Valparaiso University) was the most pessimistic of the five groups and issued a Sell recommendation with a target price of $27. This team believes the threat of substitution is very high and was most concerned with the rising popularity of breastfeeding. They also believed the firm was pinning a lot of hope on the rising share of revenues from the Asian market and said the elimination of the one child policy may not have as big of an impact on increasing the birth rate as many believe. Their price target was built around a risk-adjusted discounted cash flow analysis which took into account a “macro risk” which upped the discount rate significantly.


Winning Team! Illinois Institute of Technology

In the end, Illinois Institute of Technology won the judges favor. The team included Venkata B. Chintaluri, Thai (Samuel) H. Doan, Ming-Tao Lee, Rasinee Pongchairerks, Salonie Sehgal, and faculty advisor Michael Joseph Rybak, CFA. Congratulations IIT students and good luck at the Americas Regional Finals!

We would like to thank everyone involved with making this event possible including all the students, faculty advisors, judges, scorers, graders, and CFA Chicago’s Membership Engagement Advisory Group. Special thank you to Mead Johnson Nutrition for participating as this year’s feature company, Michel Cup, Executive Vice President and Chief Financial Officer (Mead Johnson Nutrition), and Kathy McDonald, Vice President – Investor Relations (Mead Johnson Nutrition for taking the time to present to the participants at this year’s Company Presentation kickoff on November 20th, 2015. Thank you!


Illinois Institute of Technology: Venkata Chintaluri, Thai H. Doan, Ming-Tao Lee, Rasinee Pongchairerks, Salonie Sehgal, Faculty Advisor – Michael Rybak, CFA

University of Illinois at Chicago: Collin Scott Baffa, Michael DeSalle Jr., Ritesh Ghosh, Matthew Thomas Lewellen, Faculty Advisor – John Miller

University of Illinois at Urbana–Champaign: Zulay A. Sosa Bazante, Siwei Li, Vanditha Mysore Ravindranath, Tanvi Rotkar, Ning Wang, Faculty Advisor – Kevin Waspi, CFA

Loyola University Chicago: Robert Joseph Englert, Bryan Madding, Trung V. Nguyen, Rick Osty, Faculty Advisor – Steven Todd

Valparaiso University: Benjamin John Coxey, Kyle J. Crawford, Trent Tanber, Faculty Advisor – Bruce MacLean


CFA Society Chicago Membership Engagement Advisory Group Research Challenge Committee:

Deborah Koch, CFA: Co-Chair of Research Challenge Committee, Northern Trust

Larry Lonis, CFA: Co-Chair of Research Challenge Committee, U.S. Trust

Maura Murrihy, CFA: Co-Chair of Membership Engagement Advisory Group

Daniel Welker, CFA: Co-Chair of Membership Engagement Advisory Group



Graders Industry Mentors
Bruce Ebel, CFA

Joseph Grandis, CFA

Justin D. Hance, CFA

Kerry Jordan, CFA

Alan M. Meder, CFA, CPA

Carla Norfleet Taylor, CFA

Dorothea C. Gilliam, CFA

William Hyatt, CFA

Stephen Moy, CFA

Branimir Petranovic, CFA

Daniel J. Phillips, CFA

Joan Rockey, CFA, CAIA

Edward Trafford, CFA

Kevin Clearly, CFA

James C. Goss, CFA

Ben Hier, CFA

Jaime M. Katz, CFA

Kenneth Perkins, CFA

Stefan Quenneville, CFA

Steven Schwartz, CFA

John C. Simmons, CFA

Marie C. Winters, CFA, CAIA

John T. Wong, CFA

CFA Institute Research Challenge

Regional and Global Challenge Schedule:

CFA Institute Research Challenge: 2015-16 Tournament Bracket

Distinguished Speakers Series: Dan Fuss, CFA

Blog_FussDan Fuss, CFA and former member of the CFA Society Chicago, spoke to a packed house at the University Club of Chicago on December 3. Fuss has over five decades of investment experience and joined Loomis, Sayles & Company in 1976. He’s Vice Chairman of the firm’s Board of Directors and manages the firm’s flagship Loomis Sayles Bond Fund, as well as a number of other fixed income offerings. Fuss has earned numerous accolades over the years including Morningstar’s Fixed Income Fund Manager of the Year, the Institutional Investor Money Management Lifetime Achievement Award, the Lipper Excellence in Investing Award, the CFA Society Milwaukee Lifetime Achievement Award, and was named to the Fixed Income Analysts Society’s Hall of Fame.

During his talk, Fuss focused on what he calls the Four Ps: Peace, Prosperity, People, and Politics. Starting with peace, he discussed the growing conflicts in the Middle East, Eastern Europe, and South China Seas. While he brought up the Cold War and the challenges faced by governments and leaders then, he remains optimistic about the issues facing the world today. Fuss believes that world leaders can work together to solve these problems.

Fuss also believes that in the United States, despite a gridlocked Congress with little appetite for increased spending, the nation’s share of military spending is likely to rise, especially given the geopolitical climate. That’s “prosperity,” or lack thereof. With rising military spending, the government will need more revenues and those revenues can come from two sources: debt and taxes. Higher taxes, he says, will push more investors to favor tax-exempt muni bonds and which will have implications for the taxable bond market.

Fuss’ “people” is focused on changing demographics, which is not just a challenge faced by the United States.  All developed countries are aging and those aging populations require more resources, especially healthcare, which is another reason he expects taxes to increase. Fuss also believes that this demographic shift will increase the demand for bonds because private and public sector defined benefit plans will need to rely more heavily on bonds, rather than stocks, for liability matching.

As for politics, Fuss was not optimistic. He believes the Senate and the “ruckus” House will continue to be unable to deal with serious issues facing the country. This means the United States may be a ways from solving some of the issues facing it today, including the demographic shift and the resulting impact on government revenues.

Though not an official “P,” Fuss also talked briefly about the Federal Reserve. He noted that, despite the Fed’s domestic mandate, it has been more transparent about its consideration of global issues in determining the timing and magnitude of increasing interest rates. While many believe that if the Fed doesn’t raise rates this December it won’t move in 2016 because it’s an election year, Fuss disagrees. That said, he believes the chance of a rate hike in December remains 50/50, despite the recently positive statements by Chairwoman Janet Yellen. In all, Fuss anticipates a slight upward pressure on interest rates and a slight downward pressure on P/E ratios because of these aforementioned “Ps” and is positioning his portfolios cautiously.

Ben Bernanke with Martin Wolf on the Global Financial Crisis

Ben Bernanke, former Federal Reserve Chairman, spoke with Martin Wolf, chief economics commentator and associate editor of the Financial Times, at the historic Chicago Theater about his new book The Courage to Act: A Memoir of the Crisis and its Aftermath. The book is Bernanke’s chance to take on some of his harshest critics and to explain, in great detail, the Federal Reserve’s role in saving the country’s financial system during the Great Recession. Bernanke was appointed chairman of the Federal Reserve in 2006, mere months before the financial system began to unravel. During his hour-long chat with Wolf, Bernanke talked about his childhood, Lehman’s failure, and his inability to refinance his home mortgage last year.

Bernanke grew up in South Carolina, where he and his grandmother often discussed the Great Depression, which he said sparked his interest in economics. He was particularly interested in the monetary policy failures of the Great Depression and how future crises could be handled without these mistakes. In fact, on Milton Friedman’s 90th birthday, Bernanke promised that he would het let monetary policy fail again.

Wolf pointedly asked about Bernanke’s decision to let Lehman fail. Bernanke contends that he did not let the bank fail; rather it was the only option. First, he points out that they did not miss the housing bubble. He noted that he spoke with then-President George Bush about what would happen if housing prices dropped significantly and they concluded there would be a recession, but it would be manageable. What they hadn’t anticipated was how quickly short-term financing to banks would dry up as the markets got spooked. This, he insisted, was a weakness in the regulations as the system had too much dry tinder.

Turning back to Lehman, Bernanke detailed the “Lehman weekend” which started with widespread calls from the financial media to let Lehman fail. He wanted to avoid this and hoped another bank would step in to purchase Lehman as JP Morgan had done with Bear Sterns. Two potential buyers stepped forward, Bank of America and Barclays, but after examining Lehman’s balance sheet, both declined. The next option was for the Fed to lend money to Lehman (as it did later with AIG), but Lehman had no good collateral against which it could borrow. In the end, Bernanke contends he had no choice and Lehman failed.Bernanke leaves fed

The mood lightened a bit during the audience Q & A, when Bernanke was asked about the lack of mortgage credit in the market today and whether he thought it had gone from too loose to too tight. Bernanke agreed and told of how he was prevented from refinancing his home because he no longer worked for the Federal Reserve and didn’t meet the bank’s minimum number of years of self-employment. Don’t worry, though, as soon as the media got wind of it, Bernanke was offered plenty of refinancing opportunities from other banks.