1. Michael Korn Mario Knezevic Sashi Kommineni

2. Agenda Sector Overview Recap Halliburton Valero Kinder Morgan
Enterprise Products
Recommendation

3. Energy Sector Weights

4. Energy Sector SIM Portfolio

5. Halliburton – Business Overview
One of the market’s top players in the Energy sector, and more specifically, the Energy Equipment and Services industry.
Has a global reach and is known for being very diversified in its operations.
The company has a strong foothold in its industry due to a cost- leadership strategy and continuous technological innovations

6. Halliburton – Business Overview
Founded in 1919
Headquartered in Houston, Texas and Dubai, United Arab Emirates
Operations expand across 70+ countries
Roughly 50,000 employees
2 main business segments divided into 14 product service lines

7. 5-Year HAL vs. S&P Energy Sector

8. HAL - Growth Drivers and Risks
Technological advancements
Increase in oil prices
Opportunity in international economies
Diversified services
Risks
Economic and political instability worldwide
Decrease and volatility in oil prices
Volume of capital spending by customers
Subjection to cyber/security attacks with increasing presence of technology

9. HAL – Financial Analysis

10. HAL – Financial Analysis

11. HAL – Multiples Absolute Basis High Low Median Current P/E 133.7412
6.3163
P/B
3.0861
1.445
1.893
1.7588
P/S
1.8851
0.626
1.114
1.2932
P/EBITDA
3.0594
Relative to S&P500
High
Low
Median
Current
P/E
6.5515
0.451
1.1487
2.1409
P/B
1.2992
0.5495
0.864
0.5671
P/S
1.1332
0.5517
0.759
0.6314
P/EBITDA
0.5918
1.2724
0.9695

12. HAL - Valuation Terminal Discount Rate – 10.50%
Terminal FCF Growth Rate – 4.00%
Current Price - $44.58
Target Price - $49.33
10.65% Upside
12.27% Upside with Dividend Yield

13. HAL – Sensitivity Analysis

14. Valero – Business Overview
One of the Energy sector’s majors players and a leader in the Oil & Gas Refining and Marketing industry
Comprised of its refining business, ethanol division, and master limited partnership of Valero Energy Partners which handles most of its logistics network
Has been one of the top-performing stocks in the energy sector, along with some of the other major oil refiners

15. Valero – Business Overview
Recommendation: HOLD
Ticker VLO
Sector Energy
Industry Oil & Gas Refining and Marketing
Current Price (as of 11/3/2017) $80.88
Price Target $86.48
Upside %
Founded in 1980
Headquartered in San Antonio, TX
Operates 15 refineries in North America and can refine up to 3.1 million barrels per day
Employs around 10,000 people
Was one of the largest retail operators (about 6,800 outlets) until they spun off their retail operations in 2013
Market Data
Market Capitalization $ billion
Shares Outstanding million
52-Week Price Range $ $80.68
Beta
Financial Data (FY 2016)
Revenue $75,659
Revenue Growth (YoY) %
Operating Income $3,572 million
Forward Dividend Yield: %

16. 1-Year VLO vs. S&P 500

17. VLO - Growth Drivers and Risks
Benefits from VLP
Rising crack spreads
Increased oil demand
Widening Brent-WTI spread
Projects to improve refineries almost complete
Risks
Oil price volatility
Potential for crack spreads to fall
High FCFs already baked into stock price

18. VLO – Financial Analysis
Profit Margin
Operating
ROA Margin
ROE Margin

19. VLO – Financial Analysis
High EPS
Low for other multiples

20. VLO - Valuation Terminal Discount Rate – 10.75
Terminal FCF Growth Rate – 3.75
Current Price - $80.88
Target Price - $86.48
6.9 % Upside

21. VLO – Sensitivity Analysis

22. Kinder Morgan – Business Overview
Founded as Kinder Morgan Energy Partners (KMP) in 1997
Created several other companies listed in the stock exchange.
Kinder Morgan Management, LLC (NYSE: KMR) was formed to facilitate institutional ownership of KMP equity.
Completed a $38billion acquisition of El Paso Corp and created a publicly traded entity (NYSE: EPB) to its family of companies.
In 2014, all publicly held shares/units of KMP, KMR and EPB were acquired in a $76billion transaction. Kinder Morgan is now one publicly traded company with a ticker on the NYSE of KMI.
Headquartered in Houston, TX
one of the largest energy infrastructure companies in North America. The company specializes in owning and controlling oil and gas pipelines and terminals.
Kinder Morgan owns an interest in or operates approximately 84,000 miles of pipelines and 155 terminals

23. 5-Year KMI vs. S&P 500

24. KMI - Growth Drivers and Risks
Asset footprint
Increased oil demand
Risks
Oil price volatility
Safety Issues
Company fundamentals
Picture shows asset footprint of KMI (Source: KMI Investor presentation)

25. KMI – Company Fundamentals
KMI has built a large asset base across the energy spectrum in the U.S
Achieved by aggressively purchasing third party assets of all sizes.
Rising acquisition costs create need for higher energy prices to justify paying increasing valuations.
KMI has a debt that is higher than its equity
With energy prices still depressed, this weighs on fundamental outlook.
In late 2015, management slashed the company’s dividend by roughly 75%, leaving its current yield in the 2.75% range, from as high as over 14%. So, it’s dividend yield isn’t great as well.

26. KMI - Valuation Terminal Discount Rate : 10%
Terminal FCF Growth Rate : 4%
Current Price: $17.46
Target Price: $11.27
-35.5% downside

27. KMI – Sensitivity Analysis

28. EPD – Business Overview
Enterprise Products Partners L.P. is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals.
Headquartered in Houston, TX.
Has grown significantly since its IPO in July 1998, increasing its asset base from $715 million to $52 billion at December 31, 2016

29. EPD – vs S&P500 vs KMI

30. EPD - Valuation Terminal Discount Rate : 10%
Terminal FCF Growth Rate : 4%
Current Price: $26.39
Target Price: $35.61
+34.9% upside

31. Recommendation Current Price Target Price Potential Upside/ Downside
Current Portfolio Basis Points
Recommended Portfolio Basis Points
Overall Recommendation
Halliburton
$44.58
$49.33
12.27% (with dividend)
152 bp
HOLD
Valero
$80.88
$86.48
6.90%
302 bp
202 bp
SELL
Kinder Morgan
$17.46
$11.27
-35.50%
207 bp
0 bp
Enterprise Products Partners
$26.39
$35.61
34.90%
236 bp
BUY
Recommendations bring our SIM portfolio weight to S&P 500 market weight