Energy sector Stock presentation

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Energy sector Stock presentation

• Greg Godic
• Hridayesh Gupta
• Huajing Hu
• March 4, 2008
• Student Investment Management

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Agenda

• Sector Recap
• Sunoco Overview and valuation
• Weatherford International LTD overview and
  valuation
• Peabody Energy Corporation overview and valuation
• Recommendation

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Sector Recap

• Energy Sector is cyclical
• It is affected by the crude oil price
• -The crude oil price has been rising during
  last several years.
• -Its expected to keep high for the next
  several months.
• 1) Energy price keep climbing even
  during early
• 2) Spring and Summer with peak oil
  consumption are coming,
• 3) The supply cannot meet increasing
  demand, especially from emerging countries, such
  as China and India
• -

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Sector Recap

• 4) crude oil future price will be high for
  the next several months
• Renewable energy industry are large and are
  growing rapidly
• The performance of energy sector is well above
  S P 500

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Sector Recap
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Sector Recap

• Weights in SP 500
• 12.68 in SP 500
• 8.49 in SIM
• 4.19 underweight
• Current Holdings
• - BP plc (ADR) ( BP ) ( Gas and oil
  intergated industry) 424 bps
• - Peabody Energy Corporation (BTU) (Coal and
  renewable sector) 234 bps
• - Weatherford International Ltd. ( WFT) (Oil
  Well services Equipments) 191 bps

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Sunoco Inc ( Sun)

• Sunoco is gas and oil operation company, has five
  business
• Refining and Supply
• Retail Marketing
• Chemicals
• Logistics
• Coke

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Sunoco Inc ( Sun)

• DCF Valuation
• Assumptions
• Discount Rate of 11 (WACC)
• Terminal Growth Rate of 5
• Implied equity value per share of 66.92
• Currently trading at 65.69
• Upside 2

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Sunoco Inc ( Sun)

• Multiples valuation
• Absolute

• Dont recommend to buy

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Weatherford International Ltd. (WFT)

• One of the worlds largest diversified upstream
  oilfield service companies
• Equipment and services providers
• for oil and natural gas wells
• Evaluation, Drilling Intervention Services
• Completion Production Systems
• 33,000 employees in over 100
• countries

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Weatherford International Ltd. (WFT)

• 6.1 billion in annual revenues (Global)
• 87 manufacturing facilities supporting 730
  service bases

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Weatherford International Ltd. (WFT)
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Weatherford International Ltd. (WFT)

• Price and
• Performance
• Compared to
• SP 500

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Weatherford International Ltd. (WFT)

• Profitability

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Weatherford International Ltd. (WFT)

• EPS Consensus
• Peer Comparison

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Weatherford International Ltd. (WFT)
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Weatherford International Ltd. (WFT)

• DCF Valuation
• Target Price 81.83 (26 Upside)
• 10 Terminal Discount and 5 Growth Rates
• Multiple Valuation

Average Target Price 76.25 (17 Upside)
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Peabody Energy (BTU)

• Worlds Largest Coal Company
• Leading trader of coal
• Also satisfies coal demand in areas where Peabody
  does not operate
• Vast majority of sales are long-term contracts

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Peabody Energy (BTU)

• Supply 10 of Americas Electricity
• Owns 9 billion tons of reserves
• Manages 30 operations in America and Australia
• Also operated the safest mine 3 of the past 4
  years

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Peabody Energy (BTU)

• DCF Valuation
• Terminal Discount Rate standard 10
• Implied Equity
• Low Estimate 48.72
• High Estimate 71.34
• Mean and Target 61.27
• Current Price 56.62
• Upside of 8.2

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Relative Performance
WFT (65.12), BTU (27.81), BP (2.71), SP 500
(-8.31)
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Recommendation

• Action
• SELL 224 Basis Points in BP (ADR) (Currently
  424 Basis Points)
• BUY 224 Basis Points in WFT (Currently 191
  Basis Points)
• Final Recommended holdings
• BP 200 bps
• WFT 415 bps
• BTU 191 bps

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Q A
question?