Nafeesa Fathima, Joe Gangaram, Marshal Getz, Carl Ghandhi
Telecommunicati Utilities Cash Dividend
on Services
4% Receivables
3%
4%
0%
Materials
3%
Consumer
Discretionary Consumer
Staples
9%
12%
Tech
22%
Industrials
9%
Health Care
12%
Financials
10%
Energy
12.41%
Chevron
ConocoPhillips
Murphy
Transocean
4.24%
3.20%
1.83%
3.15%
HOLD
• Factors
– Oil prices continue to Rise
– ROE has always been above the S&P
– Future Demand for Crude will increase greater than Supply
– But,
– Volatile markets, volatile oil prices, and European
uncertainty
– Arbitrage opportunity between Brent and WTI
– Brazilian Oil Spill
• Key Statistics
–
–
–
–
–
–
–
Market Cap = 189.53 B
Beta = 0.84
5yr Av Div Yield = 3.1%
Current Stock Price = 95.21
52wk range = 80.41 to 110.01
52 wk change = 12.98%
S&P 500 52 wk change= -2.45%
Current SIM weight – 4.24%
12 month stock performance
Segments
Upstream
14%
93%
64%
Downstream
Revenue
Earnings
Profit Margins
86%
7%
1.5%
Chevron is 4th largest company by sales and 4th largest constituent
in S&P 500
• Oil Prices
•Increasing capital and exploratory expenditures
•Exploring new oil fields in Australia, Asia and US
•Great international presence and well-diversified
•Actively streamlining its downstream business to increase
profitability
•Selling off its fuel marketing and aviation units in some
countries
•Brazilian Oil Spill
•Volatility of Oil
•Arbitrage opportunities between
Brent and WTI
•Slow economy
•Euro Crisis
•Big spill during deepwater drilling
•2400 barrels of oil into the Atlantic Ocean
•$28 million fine by the Brazilian government
•Temporary ban from Brazil
•Needs to brief US regulators
Still not a major risk for Chevron because
• More than 80% of the spill was cleaned-up
•Other recent incidents of oil spill by Petrobas
•Risk of drilling down in Brazilian deepwaters
•Brazil represents about 1% of total oil production and less than
3% of productive wells for Chevron
Terminal Discount Rate =
Terminal FCF Growth =
Current Price
Implied equity value/share
Upside/(Downside) to DCF
11.5%
3.0%
$
$
95.77
119.91
25.2%
Absolute
Valuation
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
B.
24.1
1.1
3.2
8.06
9.0
Price = 108.54
Low
Median
C.
5.6
0.4
1.4
2.37
3.8
Current
D.
10.2
0.8
2.3
4.62
6.7
#Your
Target
Multiple
E.
7.45
0.8
1.52
3.45
5.9
F.
9
0.8
1.8
4.5
6
*Your
Target E, S,
B,
etc/Share
G.
$12.58
$119.25
$60.7
$25.21
$20.24
Your
Target
Price
(F x G)
H.
$113.22
$95.4
$108.26
$100.84
$121.45
%
weight
G.
40%
20%
10%
15%
15%
•Current Stock Price = $95.77
•Target Stock Price (40% multiples and 60% DCF) = $115.36
•Upside = 20.4%
•Recommend a HOLD strategy
*BBL
• Key Statistics
–
–
–
–
–
–
–
Market Cap = 189.53 B
Beta = 0.84
5yr Av Div Yield = 3.1%
Current Stock Price = 95.21
52wk range = 80.41 to 110.01
52 wk change = 12.98%
S&P 500 52 wk change= -2.45%
•World’s largest offshore drilling contractor
•Currently operates off the coasts of 6 continents
•Operates a fleet of 139 different types of rigs
•Aker
drilling
acquisition
Current SIM weight – 4.24%
12 month stock performance
Current SIM Weight 3.15%
7%
64%
Profit Margins
1.5%
Chevron is 4th largest company by sales and 4th largest constituent
in S&P 500
• Oil Prices
Transocean Valuation - Relative to Industry
Relative to Industry
High
Low
Median
Current
Status
•Increasing
capital and2.50exploratory
expenditures
P/TE
0.46
1.20
0.95 Undervalued
P/FE
2.00
0.51
1.10
1.10 Fairly Valued
P/B
1.40
0.40
0.70
0.70 Fairly Valued
•Exploring
new
oil
fields
in
Australia,
Asia
and
US
P/S
1.40
0.40
1.10
1.20 Overvalued
P/CF
2.60
0.50
0.90
0.90 Fairly Valued
Valuationand
- Relative
to S&P 500
•Great internationalTransocean
presence
well-diversified
Relative to S&P 500
High
Low
Median
Current
Status
P/TE streamlining 9.10
0.27
1.30
1.30to
Fairly
Valued
•Actively
its
downstream
business
increase
P/FE
4.10
0.24
0.96
0.91 Undervalued
P/B
1.60
0.20
0.50
0.40 Undervalued
profitability
P/S
4.60
1.00
2.10
1.70 Undervalued
P/CF
2.60
0.30
0.90
0.80 Undervalued
•Selling off its fuel marketing and aviation units in some
countries
•Brazilian Oil Spill
•Volatility of Oil
•Arbitrage opportunities between Brent and WTI
•Slow economy
•Euro Crisis
Transocean - Absolute Valuation
Absolute Valuation
P/FE
P/S
P/B
P/EBITDA
P/CF
High
$
$
$
$
$
77.00
7.00
4.10
15.25
28.30
Low
$
$
$
$
$
3.10
1.30
0.40
2.20
2.50
Median
$
$
$
$
$
14.50
2.60
1.20
8.21
9.40
Current
$
$
$
$
$
11.30
1.90
0.80
13.51
6.70
Target MultipleTarget/Share Target Price
$
$
$
$
$
Summary
Implied Value
Current Price
Upside
$
$
65.59
45.71
43%
14.50
2.40
1.10
10.50
8.50
$
$
$
$
$
3.59
27.36
65.34
6.24
8.11
$
$
$
$
$
52.00
65.66
71.80
65.52
68.90
RIG
•Brazilian Oil Spill
•Volatility of Oil
•Arbitrage opportunities between Brent and WTI
•Slow economy
•Euro Crisis
Terminal
Discount
Rate =
Terminal
FCF
Growth =
Analyst: Carl Ghandhi
Date: 11/28/2011
Year
Revenue
2011E
2012E
8,757
9,934 10,722
% Growth
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
13.4%
1,998
% of Sales
Plus/(minus)
Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
7.9%
2,824
2014E
11,151
4.0%
3,345
2015E
11,597
4.0%
3,479
22.8%
26.4%
26.3%
30.0%
30.0%
(525)
(695)
(751)
(781)
(812)
-6.0%
-7.0%
-7.0%
-7.0%
-7.0%
2.5%
2016E
12,061
4.0%
3,618
30.0%
(844)
-7.0%
2017E
12,544
4.0%
3,763
30.0%
(878)
-7.0%
2018E
13,045
4.0%
3,914
30.0%
(913)
-7.0%
2019E
13,567
4.0%
4,070
30.0%
(950)
-7.0%
2020E
14,110
4.0%
4,233
30.0%
2021E
4.0%
30.0%
423
456
564
587
610
635
660
687
714
743
22.0%
22.0%
22.0%
22.0%
22.0%
22.0%
22.0%
22.0%
22.0%
22.0%
1,500
1,617
2,001
2,081
2,164
2,250
2,340
2,434
2,531
Free Cash Yield
10.73%
Terminal P/E
12.1
Terminal EV/EBITDA
6.0
-7.0%
22.0%
1,148
31,904
4,402
(988) (1,027)
-7.0%
Terminal Value
14,674
324
% Growth
Add
Depreciation/Amor
t
2,619
2013E
13.5%
2,633
30.6%
7.8%
23.7%
4.0%
4.0%
4.0%
4.0%
4.0%
4.0%
4.0%
1,314
1,490
1,608
1,561
1,624
1,809
1,882
1,957
2,035
2,116
2,201
15.0%
15.0%
15.0%
14.0%
14.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
138
(206)
(352)
155
161
168
175
182
189
196
204
1.6%
-2.1%
-3.3%
1.4%
1.4%
1.4%
1.4%
1.4%
1.4%
1.4%
1.4%
1,314
1,192
1,287
1,227
1,276
1,327
1,380
1,435
1,492
1,552
1,614
15.0%
12.0%
12.0%
11.0%
11.0%
11.0%
11.0%
11.0%
11.0%
11.0%
11.0%
1,286
1,592
1,586
2,490
2,590
2,814
2,927
3,044
3,166
3,292
3,424
23.8%
-0.4%
57.0%
4.0%
8.7%
4.0%
4.0%
4.0%
4.0%
4.0%
Current Price
$
Implied equity value $
Upside/(Downside) to
45.71
69.30
51.6%
Implied Value:
$67.45
•Brazilian Oil
Current Price:
$45.71
Upside:
~48%
Risks
Catalysts
GDP remains stagnant
Global GDP growth
Oil
Euro debt crisis
Increase in oil •Brazilian
price
Increase in utilization and day rates Oil price drops
Utilization decreases
Middle East unrest
High amount of debt
•Industry leader
•Brazilian Oil
•Specialization in harsh environment drilling
• Well-positioned to excel moving forward
•Recommendation: HOLD
•
•
•
•
•
Current Stock Price: $49.44
52 Week Range: $40.41 – 78.16
ROE: 12.13%
Market Cap: $9.57B
Current Weight
in SIM Portfolio: 1.83%
12 month stock performance
• Engages in the exploration and production of oil and gas properties worldwide
• Explores for and produces crude oil, natural gas, and natural gas liquids
• Divestment strategy in the refinery segment
• Markets its refined products through a network of retail gasoline stations and
branded and unbranded wholesale customers
• Partnership with Walmart and currently has 1,119 stations
• Current Plays in US, Canada, Malaysia, UK, Congo, Iraq
New E&P
attempts
Over half of the
13 wells drilled
this year haven't
proven to be
economical.
Street’s response
of slashing
earnings
estimates
Street’s
increased
confidence of
operations
Drilling
Success(failure)
well below its
historical average
Reinvestments in
profitable plays as
well as future E&P
Absolute Basis
High
Low
Median
Current
P/Forward E
36.2
6.7
13.7
10.7
P/S
1.7
.30
.80
.40
P/B
4.1
1.0
2.6
1.2
P/EBITDA
11.42
2.22
5.77
3.51
P/CF
14.2
3.4
9.0
4.7
Relative to S&P
500
P/Trailing E
High
Low
Median
Current
2.9
.39
1
.88
P/Forward E
1.6
.50
.89
.86
P/B
1.5
.50
.90
.60
P/S
1.1
.30
.60
.30
P/CF
1.4
.40
.90
.50
Absolute Valuation
High
A.
Low
B.
Median
Current
Target
Multiple
D.
E.
F.
C.
P/Forward E
36.2
6.7
13.7
10.7
13.4
P/S
1.7
.30
.80
.40
P/B
4.1
1.0
2.6
P/EBITDA
11.42
2.22
P/CF
14.2
3.4
Target E,S,B/Share
Target Price
G.
H.
5.24
70.21
.50
146.42
73.21
1.2
1.50
46.05
69.07
5.77
3.51
5.0
15.74
78.70
9.0
4.7
6.0
11.75
70.50
Average
50% Multiples: $72.34
50% DCF: $59.74
$72.34
Target Price: $66.04
32.4% Upside
• Recommendation to Hold
• Relatively cheap, but closely aligned with the S&P 500.
• Although more than half of the 13 wells drilled this year
were non economical, this is below Murphy’s historical
average.
• Continued Growth of production – 300,000 BOE by
2015
• Divestment of the Refinery business. Suitable for a
smaller outfit such as MUR
• Financial uncertainty in Europe and United States can affect economic growth
and hinder oil prices
• Lower production per day due to required workover maintenance or more dry
wells.
• Incorrect judgment of engineers regarding recoverable crude oil and natural
gas
• Environmental risks – Hurricanes, floods, earthquakes
• Drilling accidents
•
•
•
•
Current Stock Price: $66.14
52 Week Range: $58.65 - 81.80
ROE: 16.45%
Market Cap: $87.83B
• Current Weight in SIM Portfolio:
3.20%
•
•
•
•
•
•
•
•
•
•
•
Facts
Third largest U.S. integrated energy company
75% of proved reserves located in politically stable countries
Fourth-largest refiner worldwide
29,000 worldwide employees and assets of $160B
Operations in over 35 countries
Accomplishments
In 2010, reduced debt by 18 percent to $23.6 billion
In 2010, delivered total shareholder return of 39 percent
Reduce refining capacity to improve returns and margins
Recorded our safest year as ConocoPhillips
• Core activities worldwide:
–
–
–
–
–
•
Petroleum exploration and production
Petroleum refining, marketing, supply and transportation
Natural gas gathering, processing and marketing
Chemicals and plastics production and distribution
Investments in Emerging Businesses
• Explore, produce, transports, and markets crude oil and natural gas
• Exploration activities in 17 countries and produced hydrocarbons in 14
countries
• Production for 2010 averaged 1.75 million BOE per day
• E&P activities contributed to 80% of Conoco’s profit in 2010
• Increase in oil prices
• Continued development of emerging nations
contribute to an increase in demand of petroleum
products and bi-products.
• Advances in technology (Horizontal Drilling,
Directional Boring, etc.) allow access to previously
untapped wells, and reduce the production costs as
well.
• Political uncertainty in the U.S. as well as
abroad
• Turmoil and instability in the Middle East.
• Rapid decrease in the price of oil similar to
August and September 2008
Absolute Basis
High
Low
Median
Current
P/Trailing E
21.30
6.10
13.30
12.10
P/Forward E
23.90
7.80
12.60
10.40
P/B
3.80
1.40
2.50
1.90
P/S
1.40
0.50
1.00
1.00
P/CF
10.00
5.10
7.40
7.10
Relative to S&P
500
P/Trailing E
High
Low
Median
Current
1.10
0.50
0.77
0.95
P/Forward E
1.20
0.57
0.80
0.83
P/B
1.40
0.70
1.00
1.00
P/S
1.00
0.60
0.80
0.80
P/CF
0.90
0.60
0.70
0.80
Absolute Valuation
High
A.
Low
B.
P/Forward E
C.
Median
Current
Target
Multiple
D.
E.
F.
Target E,S,B/Share
G.
Target Price
H.
18.6
5.3
8.8
8.8
9
7.95
71.55
P/S
0.8
0.2
0.5
0.4
0.7
140
98
P/B
2.3
0.9
1.5
1.5
1.65
46.67
77
12.8
2.6
3.84
3.52
4
18.23
72.91
8.2
2.3
5.5
5.4
6.1
12.72
77.59
P/EBITDA
P/CF
Average
Current Price
Implied equity
value/share
Upside to DCF
$
66.14
$
70.72
6.9%
70% Multiples: $79.41
30% DCF: $70.72
$79.41
Target Price: $77.01
16.5% Upside