CIF Sector Recommendation Report (Fall 2012)

Transcription

1 CIF Sector Recommendation Report (Fall 2012) Date: Analyst: Justin L. Jaena Sector: Energy (XLE) Review Period Section (A) Sector Performance Review 1

2 Both the market and the sector were negative during this time. The energy sector underperformed the broad market in this two week period. First this can be attributed to the falling price of crude oil. U.S. crude oil fell to its lowest price since December (David 2013). Gas prices are also low as well making further exploration and production unattractive. The most noteworthy news from the sector is the falling oil and gas prices along with a predicted continued fall. In addition, Ireland is planning to cut its imports of oil. Currently the country imports 100% of its oil but plans to slash these imports as Providence Resources is going to begin major exploration offshore (Twomey 2013). However as oil prices fall, investors can expect a growing demand for energy especially in China which bodes well for the industry. Low oil prices lead to a decrease in offshore drilling as this no longer makes it a profitable venture. However, manufacturers of offshore drilling equipment can still see a rise in sales as the US is increasing its regulations, forcing many offshore drilling companies to upgrade their rig fleets (Seeking Alpha 2013) 2

3 Largest Positive Movers (These are the only companies with positive gain for the 2 week review period) Company Ticker Change Kinder Morgan KMI 0.57% Spectra Energy SE 0.23% Tesoro Corp. TSO 0.17% We see some very marginal gains in the only three companies to go positive during the period. Due to the marginality of the performance it is hard to determine if something specific attributed to the positive performance. Largest Negative Movers Company Ticker Change Conoco Phillips COP % Peabody Energy BTU -9.10% Newfield Exploration NFX -8.06% QEP Resources QEP -8.05% Conoco Phillips saw a massive fall during the review period due to putting a hold on their Alaska drilling operations (Crow 2013). The company claims high costs and regulatory uncertainty is their reasoning behind the decision. Peabody Energy fell due to their drop in earnings estimates as coal prices fall and they expect costs to rise. Newfield stock has seen decline due to the devaluation of their properties and lower volumes (Zacks Equity Research 2013). QEP, being an oil and natural gas exploration and production company was also susceptible to the declining prices. Largest Holdings Company Ticker Change Market Cap (Billions) Exxon Mobil XOM -1.01% Chevron CVX -2.81%

4 Exxon Mobil and Chevron s poor performance can be attributed to the drop in oil prices. Exxon is going to partner with Providence Resources to begin exploration activities off the south coast of Ireland (Towmey 2013). Charter costs for shipping oil may fall for the future which bodes well for this company. Recently they booked two tankers for the year s lowest rates (Sheridan 2013). Currently the oil giant is expected to spend $37 Billion a year in capital expenditures for the next five years. While many companies are looking towards producing oil from the U.S., Exxon continues to look abroad for their oil production. Chevron plans to spend a similar amount of capital expenditures but is looking in the United States far more than Exxon. Asia is another market that the company plans to focus on as well by restructuring its downstream business of refining and selling gasoline in this region (Illia 2013). Recently Chevron received a violation notice over a fuel spill in March. Penalties for this violation are yet to be determined. Finally, the company s legal battle in Ecuador still rages on for an oil spill incident originally caused by Texaco (Pino 2013). For the short term outlook the most major factors which will play a part in the sector are the falling oil prices and regulation uncertainty. Many companies have done poorly during the review period because of this such as Conoco Phillips having to delay their Alaska drilling venture. Section (B) Sector Holding Updates Company #1: Ensco (ESV) Date Recommended: Date Re-evaluated: Company Update Currently the company started to build a fourth jack-up rig for a $225 million. This new rig should be ready by the year They recently published a quarterly report within the period showing revenue growth of 8% and their profit margin reached a high of 28.42%. Relative Performance Relative to the SP500 and Energy sector, ESV underperformed. This company provides contract offshore drilling services and as the prices of oil fall, the demand for offshore drilling decreases as this is a very expensive venture. Price Charts 4

5 Insert a price chart of the stock for the most recent three months. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period Insert a price chart of the stock for the most recent one year. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period 5

6 Valuations Analysis Original Analysis Copy/paste P/E (TTM), P/S (TTM), P/B (MRQ), P/CF (TTM) of the stock, the industry, and the sector from ratio analysis section of the original stock recommendation report (from CIF website, reports tab) Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Dividend Yield Total Debt/Equity (MRQ) Net Profit Margin (TTM) ROA (TTM) ROE (TTM) Re-evaluation Analysis Copy/paste the requested valuation multiples from Financials tab Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Dividend Yield Total Debt/Equity (MRQ) Net Profit Margin (TTM) ROA (TTM) ROE (TTM)

7 P/E, P/S, P/B, and P/CF ratios fell which can be attributed to the fall in the company s share price. Dividend yield increased slightly and this company has generally been considered a high dividend stock with consistent dividend payouts. Historical Surprises Original Analysis Copy/paste Historical Surprises Table from the original stock recommendation report (from CIF website, reports tab) Re-evaluation Analysis Copy/Paste the Historical Surprises Table from Analysts tab (include both revenue and earnings; make note that revenues might be in millions ) HISTORICAL SURPRISES Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) 7

8 Quarter Ending Dec-12 1, , Quarter Ending Sep-12 1, , Quarter Ending Jun-12 1, , Quarter Ending Mar-12 1, , Quarter Ending Dec , Earnings (per share) Quarter Ending Dec Quarter Ending Sep Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec Historical Surprises remain the same. 8

9 Consensus Estimates Original Analysis Copy/paste Consensus Estimates Analysis Table from the original stock recommendation report (from CIF website, reports tab) Re-Evaluation Analysis Copy/paste the Consensus Estimates Analysis Table from Analysts tab (include both revenue and earnings) CONSENSUS ESTIMATES ANALYSIS Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) # of Estimates Mean High Low 1 Year Ago SALES (in millions) 9

10 Quarter Ending Jun , , , , Quarter Ending Sep , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Quarter Ending Jun Quarter Ending Sep Year Ending Dec Year Ending Dec LT Growth Rate (%) Mean revenue estimates for the June quarter of 2013 fell slightly but rose for the September quarter. Revenue estimates for 2013 declined as well. Revenue estimates for 2014 rose marginally from previous estimates. In terms of earnings the estimates have increased for the June and September quarter of However earnings estimates declined for the year s earnings estimates also declined. 10

11 Estimate Revision Analysis Original Analysis (MM/DD/YYYY) Copy/paste Estimates Revision Summary Table from the original stock recommendation report (from CIF website, reports tab) Re-Evaluation Analysis Copy/paste the Estimates Revisions Summary Table from Analysts tab (include both revenue and earnings) ESTIMATES REVISIONS SUMMARY Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Quarter Ending Jun Quarter Ending Sep

12 Year Ending Dec Year Ending Dec Earnings Quarter Ending Jun Quarter Ending Sep Year Ending Dec Year Ending Dec The most disturbing thing about the analyst revisions is the 20 downward revisions for earnings in the June quarter and the 17 downward revisions for earnings in Overall there are more downward revisions in the past week than upward revisions. Analysts Recommendations Original Analysis Copy/paste Analyst Recommendations and Revisions Table from the original stock recommendation report (from CIF website, reports tab) Re-Evaluation Analysis 12

13 Copy/paste the Analyst Recommendations and Revisions Table from Analysts tab (include both revenue and earnings) ANALYST RECOMMENDATIONS AND REVISIONS 1-5 Linear Scale Current 1 Month Ago 2 Month Ago 3 Month Ago (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL No Opinion Mean Rating NO CHANGES Section (C) Sector Recommendations No recommendations were made as ESV still has strong ratios and future prospects for growth although it may take time to see these returns. The stock is already close to the stop-loss price and the CIF has already gone too far to not see if ESV can rebound. The stock still has a low PEG ratio, high profit margin and strong dividends. While the demand for short term drilling is decreasing, the demand for upgrades due to increased regulation in the United States will put ESV in a position to increase their sales. This bodes well for providers of oil drilling equipment. On the production side of the sector, the sentiment is generally bullish as oil and gas prices remain low and are forecasted to fall. But in the long term the market can expect increase demand overall due to increased demand in China. 13

14 Section (D) Sector Holding Recommendations NO RECOMMENDATIONS Company Name Ticker Symbol Date Recommended Date Reevaluated Ensco PLC ESV Sell Recommendation (Explain Why) Adjust Target Price Adjust Stoploss Price 14

15 References finance.yahoo.com reuters.com 15