CHEVRON CORPORATION &
CONOCO PHILLIPS
Christian Moore
Sung Bae, Mun
RECAP
¢  Our
Energy Sector recommendation was an increase 40
basis points.
¢  We currently own Chevron at 4.75% of the portfolio, and
we own Conoco Phillips at 2.87% of the portfolio. We
plan to buy more Conoco Phillips. These two stocks
make up 7.62 of the 8.75% in energy in the portfolio.
CHEVRON BUSINESS ANALYSIS
¢  Business
Segments – Oil and Natural Gas, they also lead
in Manufacturing, Global Trading, Products, Pipelines,
Shipping, Lubricants, and Oronite. Other interests of
Chevron include Chemicals, Mining, Power, and
Technology
CONOCO PHILLIPS BUSINESS
¢  ConocoPhillips
has six major business segments:
Exploration and Production, Midstream, Refining &
Marketing, LUKOIL, Chemicals, and Emerging
Businesses. Exploration and Production (E&P) segment
explores for, produces, transports and markets crude oil,
bitumen, natural gas, liquefied natural gas (LNG) and
natural gas liquids on a worldwide basis.
KEY BUSINESS DRIVERS
¢  Fundamental
drivers of these stock prices are the oil
prices, the litigation regarding fossil fuels and the
exploration and development of clean energy sources.
RECENT PERFORMANCE
¢  Chevron
is currently trading at $108.87, down 12% from
its 52-week high and down 8% since the start of the
month.
¢  ConocoPhillips is currently trading at $66.20, down from
its 52 week high of $87.
¢  This is due to the decrease in oil and gas prices. 90% of
all the variation in the stock price of ConocoPhillips is
explained by the crude oil price.
COP VS CRUDE OIL
ROE
¢  Chevron
has a Return on Equity of 13.71%
¢  ConocoPhillips
has a Return on Equity of 16.70%.
¢  This ratio shows ConocoPhillips as the more profitable
company, revealing that their shareholders earn more for
their investment in the company.
OTHER KEY RATIOS
Chevron
ConocoPhillips
P/S : 1.01
P/S : 1.42
P/B : 1.32
P/B : 1.47
P/E : 10.30
P/E : 8.91
Enterprise
Value/EBITDA:
5.45
Enterprise
Value/
EBITDA : 4.44
VALUATION PRICE TARGETS
Chevron-
Current
Price –
108.87
Target
Price –
131.60
Projected
Return
including
Dividend
– 20.95%
Conoco
Phillips-
Current
Price –
66.07
Target
Price –
86.15
Projected
Return
including
Dividend
– 27.4%
CHEVRON DCF
Christian Moore
Year
Revenue
%Growth
Operating Income
Operating Margin
Terminal Discount Rate =
Terminal FCF Growth=
2014
$ 233,365
33,879
15%
2015
2016
2017
2018
13.0%
2.7%
2019
2020
2021
2022
2023
2024
2025
$ 252,035 $ 267,157 $ 288,529 $ 311,612 $ 336,540 $ 363,464 $ 378,002 $ 412,022 $ 457,345 $ 493,933 $ 533,447
7%
6%
8%
8%
8%
8%
4%
9%
11%
8%
8%
41,244
16%
45,347 $ 49,564.69 $ 54,174.21 $ 59,212.41 $ 64,719.16 $ 70,738.05 $ 77,316.69 $ 84,507.14 $ 92,366.30 $ 100,956.37
17%
17%
17%
18%
18%
19%
19%
18%
19%
19%
Other Income
Other Income % of s ales
1,258.20 1,358.86 1,467.56 1,584.97 1,711.77 1,848.71 1,996.61 2,156.33 2,328.84 2,515.15 2,716.36 2,933.67
1%
1%
1%
1%
1%
1%
1%
1%
1%
1%
1%
1%
Interest and Other
Interest % of Sales
187.92 202.95 219.19
0.1%
0.1%
0.1%
236.73
0.1%
255.66
0.1%
276.12
0.1%
298.21
0.1%
322.06
0.1%
347.83
0.1%
375.65
0.1%
405.71
0.1%
438.16
0.1%
Taxes
Tax rate
13,716.15 14,401.96 15,122.06
40%
40%
40%
15878.16
43%
16672.07
43%
17505.67
43%
18380.95
43%
19300.00
43%
20265.00
43%
21278.25
43%
22342.16
43%
23459.27
43%
Net Income
% Growth
18,154.98
22940.98
11%
25464.49
11%
28774.87
13%
31364.61
9%
33873.78
8%
36583.68
8%
39510.37
8%
43461.41
10%
48242.16
11%
Add Depr/Depl/Amort
% Of Sales
Plus/minus Changes W C
% of s ales
Subtract Cap Ex
C apex % of Sales
Free Cash Flow
%Growth
9334.61
10081.38
4.0%
4.0%
344.64
-­‐351.53
0.15%
-­‐0.14%
-­‐37962.209 -­‐37939.4317
-­‐16%
-­‐15%
Shares Outstanding
Current P rice
Implied equity value/share
Upside/Downside to DCF
10686.27
11113.72
11558.27
12020.60
12501.42
13001.48
13521.54
14062.40
14624.89
15209.89
4.0%
3.9%
3.7%
3.6%
3.4%
3.4%
3.3%
3.1%
3.0%
2.9%
344.50
337.61
330.86
324.24
317.76
311.40
305.17
299.07
293.09
287.23
0.13%
0.12%
0.11%
0.10%
0.09%
0.08%
0.07%
0.07%
0.06%
0.05%
-­‐37916.668 $ (25,967.63) $ (34,277.27) $ (26,923.24) $ (50,884.92) $ (41,580.25) $ (24,721.35) $ (27,440.69) $ (29,635.95) $ (32,006.83)
-­‐14%
-­‐9%
-­‐11%
-­‐8%
-­‐14%
-­‐11%
-­‐6%
-­‐6%
-­‐6%
-­‐6%
(10,127.97) (8,914.12) (6,218.35) 8,424.68 3,076.34 14,196.47 (6,701.13) 5,606.41 25,689.04 26,431.15 28,743.44 31,732.46
-­‐14%
-­‐43%
174%
-­‐174%
78%
312%
220%
78%
3%
8%
9%
NPV of Cash Flows
$23,814.59
NPV of terminal value
$225,131.08
Value of Operating Assets$248,945.67
Adjustments
Litigation Contingency
Probability of C ont
1%
Expected Value
Pension Shortfall
-­‐1400
Net Debt
-­‐3000
Projected Equity Value
$244,545.67
Free Cash Flow Yield
Current P /E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
19,295.46 20,667.55
6%
7%
9.6%
90.4%
Terminal Value
Free C ash Yield
Terminal P/E
Termina EV/EBITDA
11.5
10.12
5.54
5.54
11.3
9.37
4.66
4.64
11
8.84
4.27
4.23
1,898.50
1,893.50
1,888.50
1,883.50
1,878.50
119.28
131.60
10.33%
131.95
132.30
132.65
133.00
231,209.62
5.64%
CONOCOPHILLIPS DCF
COP
Terminal Discount Rate =
Terminal FCF Growth =
Year
2014E
Revenue
62,575
% Grow th
2015E
62,575
0.0%
Operating Income
15,531
Operating Margin
24.8%
Interest
Interest % of Sales
Taxes
Tax Rate
Net Income
15,631
25.0%
Subtract Cap Ex
4,770
86,194
3.0%
4,913
88,780
3.0%
5,060
29.7%
5.7%
5.7%
5.7%
5.7%
5.7%
5.7%
5.7%
5.7%
569
586
603
621
0.7%
0.7%
0.7%
0.7%
0.7%
(7,645)
(6,765)
(11,022)
(2,056)
(2,118)
(2,181)
(2,247)
(2,314)
(2,383)
(2,455)
(2,528)
-44.2%
-38.2%
-44.5%
-44.5%
-44.5%
-44.5%
-44.5%
-44.5%
-44.5%
-44.5%
-44.5%
6,676
6,876
7,082
7,295
7,514
7,739
7,971
8,210
10,944
6,633
13,746
25.6%
7,429
-51.4%
7,652
3.0%
7,881
3.0%
8,118
3.0%
8,361
3.0%
8,612
3.0%
8,870
3.0%
9,137
3.0%
9,411
10.6%
10.6%
10.6%
10.6%
10.6%
10.6%
10.6%
10.6%
10.6%
10.6%
10.6%
(1,099)
(796)
113
217
223
230
237
244
251
259
266
-1.8%
-1.3%
0.2%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
4,693
7.5%
12,088
37%
106,824
100%
Current Price
4,631
3.0%
552
39,655
Shares Outstanding
83,684
3.0%
0.7%
67,169
113
7.5%
21,175
75.2%
8.1
6.4
9.8
7.8
4.1
4.0
3.2
4.9
4.9
3.8
$
71.45
86.15
Upside/(Downside) to DCF
20.6%
9,130
-56.9%
7.5%
9,404
3.0%
5,744
7.5%
9,686
3.0%
5,916
7.5%
9,977
3.0%
6,093
6,276
7.5%
10,276
7.5%
10,584
3.0%
3.0%
6,465
7.5%
10,902
3.0%
Free Cash Yield
9.2
Implied equity value/share $
7.5%
5,576
Terminal Value
11.1
1,240.0
5,414
0.3%
6,659
7.5%
11,229
3.0%
63%
-1.74%
Projected EV/EBITDA
4,496
81,246
536
NPV of terminal value
Current EV/EBITDA
3.0%
0.7%
NPV of Cash Flows
Projected P/E
4,365
78,880
520
-884.9%
Current P/E
3.0%
2024E
0.7%
(1,540)
Free Cash Flow Yield
4,238
76,583
2023E
505
% Grow th
Projected Equity Value
3.0%
2022E
0.6%
26.7%
Free Cash Flow
4,115
74,352
2021E
385
16,700
Capex % of sales
3.0%
2020E
(69)
6,608
% of Sales
20,787
72,186
2019E
-0.1%
13.4%
Plus/(minus) Changes WC
12.0%
2018E
-0.2%
9,651
% of Sales
70,084
2017E
(125)
% Grow th
Add Depreciation/Amort
2016E
12.0%
2.64%
123,163
9.12%
Terminal P/E
15.0
Terminal EV/EBITDA
8.6
HISTORICAL ROE
¢  COP
ROE
ROE
¢  CVX
ROE
2013
17.58%
2012
17.56%
2011
19.06%
2010
16.57%
ROE
2013
14.37%
2012
19.18%
2011
22.16%
2010
18.10%
HISTORICAL P/E
¢  COP
P/E
P/E
¢  CVX
P/E
¢  The
2013
2012
2011
2010
10.02
8.36
6.55
8.18
2013
2012
2011
2010
8.80
9.73
9.78
8.24
P/E
ratios have stayed for the most part over the past
five years.
S&P 500 RATIOS
P/E :
11/28/14
• 19.43%
ROE :
11/28/14
• 14.53%
COMPARING TO THE S&P AND CRUDE OIL
TECHNICAL ANALYSIS – COP
TECHNICAL ANALYSIS - CVX
RECOMMENDATION
¢  Increase
holding in ConocoPhillips 50 basis points and
Hold Chevron.
¢  An increase in holdings of ConocoPhillips will impose a
bit of dollar cost averaging, we bought 4000 shares at
$86, a purchase of 800 more shares at 67.17 will
decrease the risk of our overall position while increasing
the overall gain.
CATALYSTS
¢  Valuation
for ConocoPhillips represents a price nearly
20% higher than its current low. Improved view on the
price of oil and usage of energy across the country
increases stock price.
RISKS
¢  Increased
litigation and continued low price of oil could
continue to keep both COP and CVX stock prices down
and cause us to lose money.
¢  CVX has a much larger market cap and is continuing
exploration and development of sources of energy and
not buying more could cause us to lose out on potential
gains.
Q&A