Moog Valuation Report analyzes Moog Inc. (NYSE: MOG.A) using DCF and relative valuation models. The DCF model values Moog between $65-73 per share, indicating it is undervalued. The relative valuation model values Moog between $66.48-75.45 per share based on comparable company multiples. Both models recommend Moog as a "buy". The report provides assumptions and limitations for each valuation, and describes Moog's business segments and the aerospace & defense industry.

1. Moog Valuation Report (NYSE:
MOG.A)
Prepared by Early Albany Salim for CFA research challenge

2. Moog Valuation Report (NYSE: MOG.A)
Contents
Analyst profile.............................................................................................................................................................3
Company description..................................................................................................................................................4
Industry profile...........................................................................................................................................................4
Peer group (source: S&P Capital IQ)...........................................................................................................................4
DCF Valuation.............................................................................................................................................................5
Assumptions ...........................................................................................................................................................5
Limitations..............................................................................................................................................................6
Relative Valuation.......................................................................................................................................................6
Assumptions ...........................................................................................................................................................6
Limitations..............................................................................................................................................................6

3. Analyst profile
My name is Early Albany Salim. I am currently enrolled in a STEM certified Masters of Science in finance,
quantitative finance program at the University at Buffalo. I will be graduating in February 2017 and I am seeking
full-time opportunities in the finance industry. I have completed rigorous studies in highly technical fields including
a Bachelor of Science in computer science from a French engineering higher institution, Université de Rennes 1,
an engineering internship with Orange (France Telecom), and a wealth management internship with Foresters
Financial and currently I am portfolio manager at the Terese Kelly Investment Group.
In Fall 2015 we were tasked to complete an Investment Management project for one of our courses. The project
aimed at evaluating data and the results of our analysis. We were tasked to create a portfolio of eight stocks from
four different sectors. The securities we decided to include in our portfolio were two asset management firms,
BlackRock and Charles Schwab, two from e-commerce, Amazon and EBay, two from technology, Cisco and Citrix
Systems and two from consumer retail, Walmart and Costco. We then created an equally weighted portfolio and
a value weighted portfolio and compared the returns on this portfolio against the S&P 500 index. Our analysis
showed that our value weighted portfolio, historically beat the market by quite a margin, whereas our equally
weighted portfolio underperformed, but not by much.
In summer 2016, I interned at Foresters Financial’s Buffalo office, a not for profit financial advisory organization.
I assessed, alongside my mentor and other interns, a client’s portfolio and provided financial recommendations
that are in the client’s best interests to help them reach their goals. During the internship, we analyzed a client’s
assets, liabilities and investor risk profile to give advice tailored to their needs and goals. One particular client case
was to produce recommendations to reach a client’s ultimate goal of retiring early. We recommended a dollar
cost averaging strategy in purchasing Foresters mutual funds that were considered risky and will hopefully achieve
high returns in the long run, as well as allocating 6% of the client’s paycheck to his current retirement account
that will also be invested in 3 moderately aggressive mutual funds.
In my second semester, I served as Portfolio Manager of Consumer Staples at the Terese Kelly Investment Group,
a student-run investment body at the University of Buffalo School of Management with $300,000 of AUM.
Currently I am portfolio manager of Financials. I am tasked with overseeing the sector specific portfolio. My tasks
include researching the industry and market for macroeconomic events and screen for undervalued securities by
looking at their financial information as well as ensuring that the security will lower the overall beta of the
portfolio. One of my core strategies was to pick companies with low beta and could generate alpha returns for
the portfolio. A potential security, was then analyzed using a DCF model. If it was considered to be an undervalued
stock and had an upside potential, we would pitch it to the group. I was also involved in conducting bi-weekly
stock pitches, team meetings and implementing innovative investment strategies based on anomalies, such as
investing in undervalued grocers during the fall of oil prices. A security we believed was a good buy was Tyson
Foods, which was pitched at $51 with a target of $68. In addition to the Terese Kelly Investment Group, I was
enrolled in the Financial Modeling course instructed by Elizabeth Mohr. The course has helped me develop
quantitative skills in term of analyzing stocks prices as random walks. Utilizing the programming language R, I was
able to run regressions on large data sets as well as developing an ARIMA models for Deutsche Bank with a forecast
future steps for the next three years. With this skill, I am able to use this approach as a form of valuation, if we
assume stock prices to be random.
I am eager to be part of a team that values innovation, teamwork, passion, and trust, and puts these principles at
the heart of its strategy. I strongly believe my previous experience and analytical skills can be leveraged toward
successful performance in this role and be a valuable member of the CFA research challenge team.

4. Company description
Moog Inc., established in 1951, is headquartered in the Buffalo suburb of East Aurora, New York. Moog, Inc. is
predominant in the industrial sectors of aerospace and defense but also operates in other markets such as air
traffic management, automotive, energy, industrial machinery, marine, medical and dental simulation, medical
devices, medical OEM, Motorsport, security and space. The company’s five segments are Aircraft Group,
Components Group, Industrial Group, Medical Devices Group, and Space and Defense Group. Moog’s Aircraft
Group was selected by Lockheed Martin as the system integrator for the Primary Flight Control and the Leading
Edge Flap Actuation Systems on all three variants of the F-35 Joint Strike Fighter. Moog was also selected by Rolls-
Royce to design, qualify and manufacture the Lift System Primary Actuation for the F-35B variant. Their products
and technologies include Pilot Controls, Flight Control Electronics, Hydraulic Actuators, Redundancy Management,
Advanced Controls and Ballistic Tolerant Designs. Moog’s Components Group provides design and manufacturing
capabilities in motion, electronics and fiber optics. Their product solutions are applied in industrial, commercial,
medical, marine, aerospace, and defense applications. The Industrial Group designs and manufactures motion
control solutions for industrial applications such as plastic, metal forming, power generation, steel production,
test and simulation, wind energy and motorsports. It operates in more than 26 countries worldwide. The Medical
Devices Group are responsible for medical products such as Infusion Pumps, Safety Software, Enteral Feeding
Pumps and Surgical Handpieces. Their last segment, Space and Defense Group, provides systems, subassemblies
and components for chemical, electric and cold gas propulsion on satellites. They specialize in turret drive systems,
navy ship steering controls and fire control systems as well as security sector applicable such as sensor system
nodes.
Industry profile
The aerospace and defense industry provides defense, space, homeland security, and information technology
products. The industry is driven by the overall economic climate while the defense industry is driven by the U.S.
military budget and the global political landscape. The profitability of individual companies depends on technical
expertise and their ability to secure long-term contracts. The industry is highly concentrated and largely
dependent on federal government spending. It is cyclical and unpredictable due to uncertainty of the annual
government budgeting process and election cycles. The US aerospace and defense market has performed well in
recent years due to an increased defense budget to fight terrorist groups in the Middle East. These budget
increases have countered the declining civil aerospace sector, which saw a downturn in the end-user airline
industry after the 9/11 terrorist attacks. Second and third-tier suppliers are aggressively looking to consolidate
operations and expand capacity. Demand for advanced and innovative products has surged, especially in the realm
of robotics including unmanned aerial vehicles. This industry’s manufacturing supply network is shifting from
products to solutions and from assets to the implementation of those assets to provide maximum flexibility for
meeting strategic objectives.
Peer group (source: S&P Capital IQ)
Some of the competitors of Moog, Inc. as quoted by S&P Capital IQ are: Hexcel Corp. (NYSE:HXL), Aerojet
Rocketdyne Holdings, Inc. (NYSE:AJRD), Curtiss-Wright Corporation (NYSE:CW), Woodward, Inc.
(NasdaqGS:WWD), Teledyne Technologies Inc. (NYSE:TDY)
Value summary
USD Low High Weights
Income approach 65 73 50%
Market approach 67 75 50%
Recommended value 66 74

5. DCF Valuation
Model returns a price per share in the range of $65 to $73. My recommendation is a “buy” given this
model. All sources are cited from S&P Capital IQ.
Assumptions
 Valuation date for Moog, Inc. as of July 2nd
2016.
 Effective Tax Rate is the tax rate from 2015.
 Revenue and EBITDA forecasts for FY16, FY17 and FY18 is provided by S&P Capital IQ.
 Growth rates for revenue and EBITDA for FY19 and FY20 were taken as 1% and 4% respectively and kept
constant throughout based on optimistic outlooks but maintaining a conservative approach.
 Dep/Sales, Capex/Sales, NWC/Sales were taken as an average as FY15 revenue and EBITDA dipped by 5%
and 8% respectively
 Terminal growth rate set at 2.2% according to the long term forecast by OECD for USGDP.
 WACC assumptions
o 10-year treasury yield as on July 2nd
2016.
o Beta for Moog, Inc. at 1.73.
o Equity risk premium at 7%.
o Cost of debt calculated as YTM (4.65%) – default rate (0.2109%) * loss rate (60%).
o Market cap is set at $2Billion.
Assumptions
Effective Tax Rate % 28%
Dep/Sales 4%
Capex/Sales 4%
NWC/Sales 29%
Terminal growth rate 2%
WACC 9%
WACC-g 7%
Low High
WACC 9% 10%
WACC-g 6% 7%
USD millions FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
EBITDA 315 345 361 364 337 305 322 334 346 358
Depreciation 96 101 108 109 104 100 103 104 105 106
Capex 84 107 93 79 81 86 88 89 90 91
Change in WC 16 31 (57) 2 (10) 22 7 7 7
FCFF 171.29 149.94 172.39 180.38 188.67
PV FCFF (High) 164 132 140 135 130
Terminal value
(High) 3,013
PV FCFF (Low) 164 143 165 172 180
Terminal value
(Low) 2,606
USD millions (except
per share) Low High
Enterprise value 3,430 3,715
Net debt (1,086) (1,086)
Equity value 2,344 2,630
Number of shares
outstanding
36 36
Value per share 65 73

6. o Total debt is calculated as the sum of the average of long term debt and average of short term
debt from FY14 and FY15.
o A range of 0.5 is used to compute the low and high values of WACC
Limitations
 Forecasts and assumptions for FY16 to FY18 are the consensus analyst forecast available on Capital IQ.
 Due to unpredictability of industry’s long term growth, US long term GDP growth was used as a terminal
growth rate
Relative Valuation
Relative Valuation for Moog returns a price per share in the range of $66.48 to $75.45. My
recommendation is a “buy” according to this model. All sources are cited from S&P Capital IQ.
Assumptions
 Last 12 months EBITDA was used as it is the latest data available.
 The EV/EBITDA multiple is computed from an adjusted average of competitors multiple. The EV/EBITDA
multiple adjusted average computed is 11.275 and a range of +- 0.5 was used to calculate the “Low” and
“High” values.
 The enterprise value is then calculated as the product of the EV/EBITDA multiple and the LTM EBITDA.
 Figures for Debt and Cash are extracted from Moog, Inc.’s balance sheet as of July 2nd
2016.
 Net Debt is computed as a sum of Short Term Debt (including current portion of Long Term Debt) and
Total Long Term Debt.
 Cash value is the Total Cash and Equivalents as extracted from the balance sheet.
 Number of shares outstanding figure is extracted from the latest figures reported by S&P Capital IQ.
Limitations
 In full disclosure this is a high level relative valuation given the data available.
 The competitors and comparable companies used in the valuation are provided by S&P Capital IQ and
are considered to be similar to Moog, Inc. in terms of industry.
 The figures used for the EBITDA value may not have been normalized as it is not stated by the source,
S&P Capital IQ.
LTM EBITDA 322.24
Shares outstanding 35.90
Comparable companies valuation
USD millions Low High
EV/LTM EBITDA 10.78 11.78
LTM EBITDA 322.24 322.24
Enterprise value 3,472.10 3,794.34
Debt (1,480.04) (1,480.04)
Cash 394.43 394.43
Equity value 2,386.49 2,708.73
Shares outstanding 35.90 35.90
Value per share 66.48 75.45
Source: Capital IQ