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Published byPercival Wilkinson Modified over 8 years ago
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Energy Sector Martina Gutik Colleen Hurley Ben Jekeli Ben Smalley
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Agenda Size and Composition Business and Economic Analysis Financial Analysis Valuation Analysis Recommendation
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SIZE AND COMPOSITION
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Energy Sector Summary Composed of companies involved in the production and sale of energy – Fuel Extraction – Refining – Distribution 41 Companies 1.21 Trillion Market Capitalization
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S&P 500 Breakdown As of 3/31/10 Compared to 9.76% SIM Weight
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% SIM Over/Under S&P 500 As of 4/30/10 Recommend increasing sector weight to market level
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Industries Oil & Gas Drilling Oil & Gas Equipment & Services Integrated Oil & Gas Oil & Gas Exploration & Production Oil & Gas Refining & Marketing Oil & Gas Storage & Transportation Coal & Consumable Fuels Transocean Ltd. Noble Corp. National Oilwell Varco Inc. Peabody Energy *Not currently owned SIM Stocks
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Top 5 Companies As of 4/29/10 CompanyYTD Change Smith International Inc.75.78% Pioneer Natural Resources33.13% Rowan Companies, Inc.31.63% Denbury Resources Inc.29.39% Sunoco Inc.25.59% Company Index WeightRank Market Cap (billions) Exxon Mobil2.97%1319.96 Chevron1.52%11163.56 ConocoPhillips0.81%2688.01 Schlumberger0.80%2785.35 Anadarko Petroleum0.30%6630.62 Largest CompaniesTop Performers
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Sector Performance As of 4/30/10
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Relative Strength
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BUSINESS & ECONOMIC ANALYSIS
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Five Forces Analysis Threat of Entry – High costs to enter all industries Threat of Rivalry – Slow industry growth rate, pretty much all mature companies – Relatively low industry-to-industry Threat of Substitutes – Coal, natural gas, oil, solar, nuclear etc – End consumer has few options Threat of Suppliers – OPEC and other strong suppliers Threat of Buyers – Currently buyers have very little power
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Key Drivers of Energy Demand Oil Prices Production Capacity OPEC supply Inventories Political Influence
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2008 Oil Consumption by Nation (thousand barrels per day)
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Total U.S. Energy Consumption Liquid fuels Coal Natural gas Nuclear Renewables HistoryProjections quadrillion Btu
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2008 Oil Production by Nation (thousand barrels per day)
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Annual Energy Outlook for 2010 Low oil price High oil price ProjectionsHistory 2008 $/barrel
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Month Prior OpenHighLowVolume Settle Jun-1086.1986.0986.2482.86310,546 Jul-1089.1589.0289.3386.19115,454 Aug-1090.7790.5490.987.843,821 Sep-1091.6791.5191.7388.7524,864 Oct-1092.2592.1292.3389.4211,178 Nov-1092.792.1192.1789.857,732 Dec-1093.0692.8193.0890.228,461 Jan-1093.3192.3 90.673,366 Feb-1193.5591.8191.8290.771,216
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$/Euro versus Crude Oil Price
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FINANCIAL ANALYSIS
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Average Annual Revenue Growth
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Average Annual EPS Growth
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S&P 500 Energy Sector Growth Q4 2009 – Q1 2010 EPSRevenue Mean8.9% Median11.5% Mean3.2% Median2.6% Note : Above mean calculated without outlier (950% on far left)
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S&P 500 Energy Sector Expected Growth - 2010 EPS Revenue Mean48.4% Median12.2% Mean15.9% Median12.7%
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Sector Comparison Projected EPS Growth - 2010
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Net Profit Margin Relative to S&P 500
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VALUATION ANALYSIS
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Industry Valuation Oil Drilling Relative to S&P 500 RatioHighLowMedianCurrent Trailing P/E50.271.60.54 Forward P/E2.10.280.920.91 P/S10.51.431.5 P/B1.70.20.60.7 P/CF1.90.41.10.7 Energy Sector Relative to S&P 500 RatioHighLowMedianCurrent Trailing P/E1.60.50.81.1 Forward P/E1.30.570.80.89 P/S10.60.80.9 P/B1.40.60.9 P/CF0.90.50.70.8 Oil Exploration Relative to S&P 500 RatioHighLowMedianCurrent Trailing P/E31.50.310.951.3 Forward P/E8.10.50.81.2 P/S4.20.91.93.1 P/B2.30.40.80.9 P/CF0.80.20.50.7 Oil Integration Relative to S&P 500 RatioHighLowMedianCurrent Trailing P/E1.40.50.830.96 Forward P/E1.20.460.74 P/S10.50.7 P/B1.40.60.80.9 P/CF10.50.70.8 Overvalued by >10% Inline with S&P Undervalued by >10%
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Industry Valuation Oil Storage Relative to S&P 500 RatioHighLowMedianCurrent Trailing P/E220.2110.95 Forward P/E1.30.691.11 P/S4.50.41.21.7 P/B1.10.60.9 P/CF1.30.50.7 Oil Equipment Relative to S&P 500 RatioHighLowMedianCurrent Trailing P/E4.10.581.51.3 Forward P/E1.70.611.31.5 P/S2.80.61.51.8 P/B2.80.51.21.3 P/CF1.60.51.21.4 Oil Refining Relative to S&P 500 RatioHighLowMedianCurrent Trailing P/E7.60.230.59nm Forward P/E4.80.30.552.2 P/S0.50.10.20.1 P/B1.30.20.50.4 P/CF1.30.20.51.3 Overvalued by >10% Inline with S&P Undervalued by >10% Coal Relative to S&P 500 RatioHighLowMedianCurrent Trailing P/E23.3.321.31.1 Forward P/E2.1.391.98 P/S4.0.211.4 P/B2.1.71.5 P/CF2.1.5.81.1
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Recommendation Currently underweight by 143 basis points Recommend increasing weight by ≈143 basis points to bring to market weight – Demand for energy will increase with economic recovery, still relatively cheap Possibly look to oil refining industry or coal industry
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Questions
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