ENERGY SECTOR
Analysts:
Brandon Harlow
Taylor Horton
Yanbing Ji
Agenda
• Sector Overview
• Business Analysis
• Economic Analysis
• Financial Analysis
• Valuation Analysis
• Recommendation
SECTOR OVERVIEW
Sector Weights
Sub-Sectors
Key Players
Energy Sector Weights
S&P 500 SECTOR WEIGHTS
Utilities Cash
Telecommunic
3%
0%
ation Services Materials
2%
3%
Information
Technology
21%
Consumer
Discretionary
13%
Consumer Staples
9%
Energy
7%
Industrials
10%
Financials
17%
Healthcare
15%
Energy Sector Weights
SIM PORTFOLIO SECTOR WEIGHTS
Utilities
2%
Telecommunic
ation Services
Materials
2%
3%
Cash
3%
Consumer
Discretionary
13%
Consumer Staples
10%
Information
Technology
21%
Energy
7%
Financials
16%
Industrials
10%
Healthcare
13%
Energy Sub-Sector Weights
Oil & Gas
Exploration &
Production
Oil Related
8%
Services &
Equipment
9%
Integrated Oil &
Gas
35%
Oil & Gas Drilling
1%
Coal
1%
Oil & Gas Refining
& Marketing
46%
Key Players
Energy Sector: A category of stocks that relate to producing or supplying energy.
This sector includes companies involved in the exploration and development of oil
or gas reserves, oil and gas drilling, or integrated power firms.
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Exxon Mobil Corp. (#1 in Oil, Gas, and Consumable Fuels)
Chevron Corp.
Royal Dutch Shell plc
CNOOC Ltd.
Schlumberger (#1 in Energy Equipment & Services)
Phillips 66
ConocoPhillips
Valero Energy Corp.
Kinder Morgan
OJSC Rosneft Oil Co
China Petroleum & Chemical Corp
BUSINESS ANALYSIS
Business Cycle
External Factors & Risks
Producers & Consumers
Industry Analysis
Business Cycle
External Factors & Risks
Global Political Risks
• Global Political Relations affect sourcing & prices
• Regulatory & Legislative changes affecting cost of
compliance
• Volatile oil & gas prices
• Operational Hazards and liability
• Natural disasters and weather conditions
• Environmental or heath restrictions and regulations
• Industry Competition (substitutes)
•
Top Oil Producers & Consumers
Global Oil Production & Consumption
20
Millions of Barrels per day
18
16
14
12
10
8
6
4
2
0
United
States
China
Japan
India
Russia
Production
Brazil
Saudi
Arabia
Consumption
Canada Germany
South
Korea
Industry Analysis
Barriers to Entry- High
Bargaining Power of Buyers- Moderate
•
Capital Intensive Operations
•
Operational Experience Skillset Requirement
• Undifferentiated Product
•
Patents
• Commodity Good
•
Economies of Scale
• No switching costs
•
Government Regulations
•
Ownership of Resources
Bargaining Power of Suppliers- Moderate
•
Highly Concentrated Suppliers
Rivalry Among
Competitors- Moderate
Firms pricing model is
intertwined to each others
actions. Customers are
generally not loyal to one
company
High Capital Investment
•
Multitude of Oil & Gas firms with demand for the
product
Threat of Substitutes- Low to Moderate
• Biofuels
• Transportation Alternatives
• Renewable Energy
ECONOMIC ANALYSIS
Primary Economic Factors
Correlation with Oil Prices
Regression Analysis
Primary Economic Driver
• Population growth
Demand
• Infrastructure investment
•
Electricity supply
•
Regulation
• applications of energy saving
Energy
Prices
• Available technology
Supply
• Geographic and climate factor
• geopolitical turmoil
Economic
Growth
GDP growth
Inflation rate
Automobile industry
US export growth
Industrial output
Correlation Between S5ENRS & Oil Prices
Regression Analysis
FINANCIAL ANALYSIS
Price Range
Sales Growth
Gross Margins
Profit Margins
Operating margins
ROE,ROA
S5ENRS vs SPX Index
S5ENRS vs SPX Index-Sales
S5ENRS Index vs SPX Index--EPS
Financial Performance Compare to S&P 500
Column1
2006 2007 2008 2009 2010 2011 2012 2013 2014 Current
Gross Margin
21.34 19.62 18.51 15.04 17.13 18.43 17.52 16.65 17.68
16
S&P 500 Index 31.12
31.3 30.43 31.93 32.72 32.46 32.21 32.29 32.72
33.25
Operation Margin
16.77 16.01 14.67
9.43 12.21 13.84 12.41 11.06
9.32
0.89
S&P 500 Index 13.52 11.98
8.35
9.69 12.92 13.02 12.45 13.69 13.31
12.62
Profit Margin
11.22 10.87
6.53
4.22
8.58
9.09
8.35
7.87
6.91
1.23
S&P 500 Index
9.38
7.13
2.41
6.28
8.51
8.88
8.35
9.62
9.24
8.51
Return on Assets
12.93 11.91
8
3.9
7.67
8.63
7.57
6.59
5.3
0.77
S&P 500 Index
3.11
2.17
0.75
1.93
2.82
3.16
2.86
2.4
3.14
2.79
Return on Equity
27.91 25.32 17.12
7.47
16 17.93 15.72 13.61 11.09
1.55
S&P 500 Index 17.87 13.54
4.31 10.68 14.27 14.97 13.63 15.33 14.44
12.95
VALUATION
Returns
Multiples
Industries
Technical
Return on Equity
Returns
Price Change Returns
80.00%
60.00%
40.00%
Energy
20.00%
S&P 500
0.00%
10Y
5Y
3Y
2Y
1Y
6M
3M
Oil
-20.00%
-40.00%
-60.00%
Energy
S&P 500
Oil
Price Change Returns
10Y
5Y
3Y
2Y
1Y
6M
3M
23.31%
1.98% -16.41% -28.32% -29.62% -25.14% -11.16%
59.08% 62.27% 35.96%
9.31% -4.88% -7.93% -8.74%
-24.55% -44.63% -47.22% -53.22% -44.02% -24.38% -4.31%
Multiples
ENERGY SECTOR
High
Low
Median Current
P/E
19.17
6.20
12.85
18.21
P/B
3.09
1.45
1.89
1.58
P/S
1.57
0.63
1.01
1.33
P/EBITDA 10.43
3.06
5.84
10.07
25.00
Energy Sector Ratios
20.00
High
15.00
Low
10.00
High
P/E
24.02
P/B
2.87
P/S
1.88
P/EBITDA 10.32
S&P 500
Low
Median Current
11.96
16.60
18.29
1.48
2.28
2.69
0.78
1.33
1.83
4.40
7.19
10.19
Median
Current
5.00
P/E
120.0%
P/B
P/S
P/EBITDA
Energy Relative to S&P 500
100.0%
Energy Relative to S&P 500
High
Low
Median Current
P/E
79.8%
51.8%
77.4%
99.6%
P/B
107.7%
98.0%
82.9%
58.7%
P/S
83.5%
80.8%
75.9%
72.7%
P/EBITDA 101.1%
69.5%
81.2%
98.8%
80.0%
High
60.0%
Low
Median
40.0%
Current
20.0%
0.0%
P/E
P/B
P/S
P/EBITDA
Energy Ratios
P/E: Energy and S&P 500
P/S: Energy and S&P 500
P/EBITDA: Energy and S&P 500
P/B: Energy and S&P 500
Industries
Industries P/E
Industry
Ratio
Relative to Energy Sector Relative to S&P 500
Oil & Gas Drilling
4.62
0.25
0.25
Coal & Combustible Fuels
39.75
2.18
2.17
Integrated Oil & Gas
15.11
0.83
0.83
Oil & Gas Equipment Services
17.54
0.96
0.96
Oil & Gas Exploration & Production
72.76
4.00
3.98
Oil & Gas Storage & Transportation
25.3
1.39
1.38
Oil & Gas Refining & Marketing
10.14
0.56
0.55
Industries P/S
Industry
Ratio
Relative to Energy Sector Relative to S&P 500
Oil & Gas Drilling
1.18
0.89
0.64
Coal & Combustible Fuels
0.54
0.41
0.30
Integrated Oil & Gas
1.4
1.05
0.77
Oil & Gas Equipment Services
1.79
1.35
0.98
Oil & Gas Exploration & Production
2.53
1.90
1.38
Oil & Gas Storage & Transportation
1.85
1.39
1.01
Oil & Gas Refining & Marketing
0.38
0.29
0.21
Industries P/B
Industry
Ratio
Relative to Energy Sector Relative to S&P 500
Oil & Gas Drilling
0.57
0.36
0.21
Coal & Combustible Fuels
0.35
0.22
0.13
Integrated Oil & Gas
1.59
1.01
0.59
Oil & Gas Equipment Services
1.89
1.20
0.70
Oil & Gas Exploration & Production
1.4
0.89
0.52
Oil & Gas Storage & Transportation
2.19
1.39
0.81
Oil & Gas Refining & Marketing
1.88
1.19
0.70
Industries P/EBITDA
Industry
Ratio
Relative to Energy Sector Relative to S&P 500
Oil & Gas Drilling
79.22
7.87
7.77
Coal & Combustible Fuels
12.29
1.22
1.21
Integrated Oil & Gas
8.14
0.81
0.80
Oil & Gas Equipment Services
10.26
1.02
1.01
Oil & Gas Exploration & Production
89.59
8.90
8.79
Oil & Gas Storage & Transportation
9.34
0.93
0.92
Oil & Gas Refining & Marketing
5.09
0.51
0.50
Industries
Industry
P/E
P/B
Oil & Gas Drilling
4.62
Coal & Combustible Fuels
39.75
Integrated Oil & Gas
15.11
Oil & Gas Equipment Services
17.54
Oil & Gas Exploration & Production
72.76
Oil & Gas Storage & Transportation
25.3
Oil & Gas Refining & Marketing
10.14
P/S
0.57
0.35
1.59
1.89
1.4
2.19
1.88
P/EBITDA
1.18
79.22
0.54
12.29
1.4
8.14
1.79
10.26
2.53
89.59
1.85
9.34
0.38
5.09
Bollinger Bands – 1 Year
Bollinger Bands – 6 months
Recommendation
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Market weight
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Oil volatility
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Currently stabilizing or on upswing
• May have missed bottom
• Difficult to predict oil
• May take years for prices to rise to previous level
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