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Energy Sector

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.

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Energy Sector

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  1. Energy Sector Martina Gutik Colleen Hurley Ben Jekeli Ben Smalley

  2. Agenda • Size and Composition • Business and Economic Analysis • Financial Analysis • Valuation Analysis • Recommendation

  3. SIZE AND COMPOSITION

  4. 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

  5. S&P 500 BreakdownAs of 3/31/10 Compared to 9.76% SIM Weight

  6. % SIM Over/Under S&P 500 As of 4/30/10 Recommend increasing sector weight to market level

  7. Industries SIM Stocks Transocean Ltd. Noble Corp. National Oilwell Varco Inc. Peabody Energy *Not currently owned • 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

  8. Top 5 CompaniesAs of 4/29/10 Largest Companies Top Performers

  9. Sector PerformanceAs of 4/30/10

  10. Relative Strength

  11. BUSINESS & ECONOMICANALYSIS

  12. 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

  13. Key Drivers of Energy Demand Oil Prices Production Capacity OPEC supply Inventories Political Influence

  14. 2008 Oil Consumption by Nation(thousand barrels per day)

  15. Total U.S. Energy Consumption quadrillion Btu History Projections Renewables Liquid fuels Coal Natural gas Nuclear

  16. 2008 Oil Production by Nation(thousand barrels per day)

  17. Annual Energy Outlook for 2010 2008 $/barrel History Projections High oil price Low oil price

  18. $/Euro versus Crude Oil Price

  19. FINANCIALANALYSIS

  20. Average Annual Revenue Growth

  21. Average Annual EPS Growth

  22. S&P 500 Energy SectorGrowth Q4 2009 – Q1 2010 EPS Revenue Mean 8.9% Median 11.5% Mean 3.2% Median 2.6% Note : Above mean calculated without outlier (950% on far left)

  23. S&P 500 Energy SectorExpected Growth - 2010 EPS Revenue Mean 48.4% Median 12.2% Mean 15.9% Median 12.7%

  24. Sector ComparisonProjected EPS Growth - 2010

  25. Net Profit Margin Relative to S&P 500

  26. VALUATIONANALYSIS

  27. Industry Valuation

  28. Industry Valuation

  29. 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

  30. Questions

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