CFA Examination Level II

Elizabeth Coronado, CFA, is analyzing Nelson Motors, Inc., one of the largest and most profitable automobile manufacturers in North America. Since the early 1990s, the fastest growing and most profitable product segment for Nelson has been its sport utility vehicles (SUV) line shown in the following exhibit. Coronado believes that applying the product life cycle model to Nelson’s SUV product line will yield additional analytical insights into the company’s recent rapid earnings growth.

a. Identify the current product life cycle stage for the Raven, Hawk, and Eagle. Justify your choice of product life cycle stage by citing evidence from the following exhibit.Because of the high expectations associated with the Eagle, Nelson Motors’ current P/E is above its five-year historic range and above the auto industry P/E. An auto analyst states that “Nelson Motors has the best of both worlds:

• increasing SUV profitability and
• declining expected future earnings volatility.”

b. Evaluate each statement, using the data presented in the exhibit .