Energy Sector
Martina Gutik
Colleen Hurley
Ben Jekeli
Ben Smalley
Agenda
•
•
•
•
•
Size and Composition
Business and Economic Analysis
Financial Analysis
Valuation Analysis
Recommendation
SIZE AND COMPOSITION
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
S&P 500 Breakdown
As of 3/31/10
Compared to 9.76% SIM Weight
% SIM Over/Under S&P 500
As of 4/30/10
Recommend increasing sector weight to market level
Industries
•
Oil & Gas Drilling
SIM Stocks
Transocean Ltd.
Noble Corp.
•
Oil & Gas Equipment & Services
•
Integrated Oil & Gas
•
Oil & Gas Exploration & Production
•
Oil & Gas Refining & Marketing
•
Oil & Gas Storage & Transportation
•
Coal & Consumable Fuels
National Oilwell Varco Inc.
Peabody Energy
*Not currently owned
Top 5 Companies
As of 4/29/10
Largest Companies
Company
Exxon Mobil
Index
Weight
2.97%
Rank
1
Top Performers
Market Cap
(billions)
Company
YTD Change
319.96
Smith International Inc.
75.78%
Pioneer Natural Resources
33.13%
Chevron
1.52%
11
163.56
ConocoPhillips
0.81%
26
88.01
Rowan Companies, Inc.
31.63%
Schlumberger
0.80%
27
85.35
Denbury Resources Inc.
29.39%
Anadarko Petroleum
0.30%
66
30.62
Sunoco Inc.
25.59%
Sector Performance
As of 4/30/10
Relative Strength
BUSINESS & ECONOMIC
ANALYSIS
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
Key Drivers of Energy
•
•
•
•
•
•
Demand
Oil Prices
Production Capacity
OPEC supply
Inventories
Political Influence
2008 Oil Consumption by Nation
(thousand barrels per day)
25,000
20,000
15,000
10,000
5,000
0
Total U.S. Energy Consumption
quadrillion Btu
History
Projections
120
Renewables
100
80
Liquid fuels
60
Coal
40
Natural gas
20
Nuclear
0
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
2008 Oil Production by Nation
(thousand barrels per day)
12,000
10,000
8,000
6,000
4,000
2,000
0
Annual Energy Outlook for 2010
2008 $/barrel
225
History
Projections
200
175
High oil price
150
125
100
75
50
25
Low oil price
0
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Prior
Month
Open
High
Low
Volume
Settle
Jun-10
86.19
86.09
86.24
82.86
310,546
Jul-10
89.15
89.02
89.33
86.19
115,454
Aug-10
90.77
90.54
90.9
87.8
43,821
Sep-10
91.67
91.51
91.73
88.75
24,864
Oct-10
92.25
92.12
92.33
89.42
11,178
Nov-10
92.7
92.11
92.17
89.85
7,732
Dec-10
93.06
92.81
93.08
90.2
28,461
Jan-10
93.31
92.3
92.3
90.67
3,366
Feb-11
93.55
91.81
91.82
90.77
1,216
$/Euro versus Crude Oil Price
FINANCIAL
ANALYSIS
Average Annual Revenue Growth
60.0%
50.0%
40.0%
30.0%
10 year
20.0%
5 year
10.0%
3 year
0.0%
-10.0%
-20.0%
-30.0%
-40.0%
1 year
Energy Sector
S & P 500
RIG
NOV
NE
BTU
Average Annual EPS Growth
200.0%
150.0%
100.0%
10 year
5 year
50.0%
3 year
1 year
0.0%
Energy Sector
-50.0%
-100.0%
S & P 500
RIG
NOV
NE
BTU
S&P 500 Energy Sector
Growth Q4 2009 – Q1 2010
EPS
Revenue
200.0%
50.0%
150.0%
25.0%
100.0%
50.0%
0.0%
0.0%
-50.0%
-25.0%
-100.0%
-150.0%
-50.0%
-200.0%
Mean
Median
8.9%
11.5%
Note : Above mean calculated without outlier (950% on far left)
Mean
Median
3.2%
2.6%
S&P 500 Energy Sector
Expected Growth - 2010
Revenue
EPS
450.0%
90.0%
80.0%
70.0%
350.0%
60.0%
50.0%
250.0%
40.0%
30.0%
150.0%
20.0%
10.0%
50.0%
0.0%
-10.0%
-50.0%
-20.0%
Mean
Median
48.4%
12.2%
Mean
Median
15.9%
12.7%
Sector Comparison
Projected EPS Growth - 2010
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
Cons Discr.
Cons Stap.
Energy
Financials
Healthcare
Industrials
Info Tech
Telecom
Materials
Utilities
Net Profit Margin
Relative to S&P 500
VALUATION
ANALYSIS
Industry Valuation
Overvalued by >10%
Inline with S&P
Undervalued by >10%
Energy Sector Relative to S&P 500
Ratio
Trailing P/E
Forward P/E
P/S
P/B
P/CF
High
1.6
1.3
1
1.4
0.9
Low
0.5
0.57
0.6
0.6
0.5
Median
0.8
0.8
0.8
0.9
0.7
Current
1.1
0.89
0.9
0.9
0.8
Oil Exploration Relative to S&P 500
Ratio
Trailing P/E
Forward P/E
P/S
P/B
P/CF
High
31.5
8.1
4.2
2.3
0.8
Low
0.31
0.5
0.9
0.4
0.2
Median
0.95
0.8
1.9
0.8
0.5
Current
1.3
1.2
3.1
0.9
0.7
Oil Drilling Relative to S&P 500
Ratio
Trailing P/E
Forward P/E
P/S
P/B
P/CF
High
5
2.1
10.5
1.7
1.9
Low
0.27
0.28
1.4
0.2
0.4
Median
1.6
0.92
3
0.6
1.1
Current
0.54
0.91
1.5
0.7
0.7
Oil Integration Relative to S&P 500
Ratio
Trailing P/E
Forward P/E
P/S
P/B
P/CF
High
1.4
1.2
1
1.4
1
Low
0.5
0.46
0.5
0.6
0.5
Median
0.83
0.74
0.7
0.8
0.7
Current
0.96
0.74
0.7
0.9
0.8
Industry Valuation
Overvalued by >10%
Inline with S&P
Undervalued by >10%
Oil Storage Relative to S&P 500
Ratio
Trailing P/E
Forward P/E
P/S
P/B
P/CF
High
22
1.3
4.5
1.1
1.3
Low
0.21
0.69
0.4
0.6
0.5
Median
1
1.1
1.2
0.9
0.7
Current
0.95
1
1.7
0.9
0.7
Oil Equipment Relative to S&P 500
Ratio
Trailing P/E
Forward P/E
P/S
P/B
P/CF
High
4.1
1.7
2.8
2.8
1.6
Low
0.58
0.61
0.6
0.5
0.5
Median
1.5
1.3
1.5
1.2
1.2
Current
1.3
1.5
1.8
1.3
1.4
Oil Refining Relative to S&P 500
Ratio
Trailing P/E
Forward P/E
P/S
P/B
P/CF
High
7.6
4.8
0.5
1.3
1.3
Low
0.23
0.3
0.1
0.2
0.2
Median
0.59
0.55
0.2
0.5
0.5
Current
nm
2.2
0.1
0.4
1.3
Coal Relative to S&P 500
Ratio
Trailing P/E
Forward P/E
P/S
P/B
P/CF
High
23.3
2.1
4.0
2.1
2.1
Low
.32
.39
.2
.7
.5
Median
1.3
1
1
1.5
.8
Current
1.1
.98
1.4
1.5
1.1
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
Questions