Capital Markets: Observations and Insights Autumn 2019

​ Style Divergence

STYLE WARS

The Growth Advantage

• Three variables drive P/E multiples: growth, return on capital, and risk

• The Russell 1000 Growth Index has higher expected EPS growth, higher return on equity, and lower risk in the form of better balance sheets as compared to the Russell 1000 Value Index

Higher Returns

Stronger Growth

Lower Risk

Return on Equity

Net Debt/EBITDA

Long-Term EPS Growth

2.7x

32.0%

14.4%

0.9x

12.1%

7.8%

Russell 1000 Growth

Russell 1000 Value

Russell 1000 Growth

Russell 1000 Value

Russell 1000 Growth

Russell 1000 Value

Source: FactSet as of 9/30/19. Growth represents consensus long-term analyst estimates and actual future EPS growth rates might be materially different than the forecasts shown.

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