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Report
Chevron Corporation (Ticker: CVX)
Analyst: Edward Weagel
1
Recommendation for Chevron (CVX)
Recommendation: HOLD
Target Price (12/31/2015): $124
Closing Price (05/11/2014): $117.03
Reasoning Behind the Recommendation
 CVX outperforms the other supermajors in profit per barrel.
 The company is investing heavily in new US and International projects.
 Barrels of Oil Equivalent (BOE) per day in production is projected to
increase into 2017.
 The company reliably pays the shareholders.
Why not a BUY?
 Crude oil resources are depleting -- there is less “low hanging fruit”
 The methods for exploration are becoming more technically
challenging.
 Exploration is becoming more expensive
2
Strengths
Upstream Strengths
 Greater than 90% of earnings come from 27% of revenue
 Production per day is projected to increase to 3.1 million bpd of BOE.
 New Projects
 Angola LNG project started shipping its product.
 Australia – Wheatstone LNG project
 Delaware Basin
 Kurdistan Region – 80% stake in Qara Dagh Block
 Marcellus Shale
Downstream Strengths
 Demand is expected to rise for refined products in the next 15 years.
 US Gulf Coast Petrochemicals Project
3
Weaknesses
Risk-adjusted performance during the past 5 quarters
 The sector performed worse than the S&P.
 The company performed worse than the sector.
Upstream Weaknesses
 Exploration expense is at a high for the past 5 years at $1.8 billion
 Capital and Exploratory expenditures are at a high for the past 5 years
 The increasing reliance on offshore drilling means more risks.
Downstream Weaknesses
 Historically, the segment is vulnerable to low margins.
 This segment contributes less than 10% to earnings
 For both US and International, sales decreased for refined products.
4
Questions?
5
Recommendation for Honeywell International (Ticker: HON)
Analyst: Benjamin Yang
Recommendation:
BUY
Target price (12/2015): $103
Closing Price (4/14/2014): $90.92
2013 Sales: $39.1 B
2013 Net Income: $3.96 B
7
Strengths
 Ties to industries with positive outlook
Aerospace
Global Economy
ACS
Construction
PMT
Green Technology
EPS ($)
Transportation
 High expected earnings growth through M&A-based
competitive advantages
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
EPS
2X EPS
2005
2010
2015
Year
2020
8
Weaknesses
 Defense and Space (Aero) faces headwinds
Aero Revenue
($M)
$15,000
Aero
$10,000
Defense
$5,000
$2008
2010
2012
2014
Year
2016
2018
2020
Net Income
Margin
 Net income margin improvement capacity uncertain
beyond 2015
15.0%
10.0%
5.0%
0.0%
2008
2010
2012
2014
Year
2016
2018
2020
9
Recommendation for Kinder Morgan Energy Partners
LP (Ticker: KMP)
Analyst: Robert Nagaki
Recommendation:
BUY
Target price (12/2015): $90
Closing Price (4/14/2014): $77.70
Industry Overview
- Energy Transportation and Storage
Business Segments
- Natural Gas Pipelines
- CO2 Pipelines
- Product Pipelines
- Terminals
- Kinder Morgan Canada
*Source of basic data company 10-k
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Positives







Tennessee Gas Pipeline
El Paso Natural Gas
Copano Pipeline
Eagle Ford Gathering
Cochin Pipeline
Jones Act Tankers
$14.8 billion in future growth projects
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Negatives
 Interest Rates
 Alternative forms of Energy Transportation
 Terrorist Attacks
12
Questions?
13
Recommendation for PepsiCo (PEP)
Analyst: Chase Eggleston
Recommendation:
BUY
Target price (12/2015): $89
Closing Price (mm/dd/yyyy):
Segments
•
•
•
•
PepsiCo Americas Foods
• Frito-Lay North America (FLNA)
• Quaker Food North America (QFNA)
• Latin American food businesses (LAF)
PepsiCo Americas Beverage (PAB)
Europe
Asia, Middle East and Africa (AMEA)
14
Reasons for Recommendation
Positives:
 Return to Shareholders
 Share repurchases
 Dividends
- $2.27 per share to $2.62 per share
 Size
 Cash Flows
 Revenue Volatility
 Low Risk
 Growth Potential
 Shanghai’s DisneyLand
 At home beverage production
15
Reasons for Recommendation
Things to be aware of:
 Consumer Trends
 Commodity Prices
 Currency Exchange
 Competitors
16
Sources
1.
2.
3.
4.
5.
IBIS World
Mergent
PepsiCo 2013 10-k
PepsiCo 2012 10-k
http://seekingalpha.com/article/2059583-pepsi-tingyi-take-aim-at-coke-with-disneywin
6. http://www.fool.com/investing/general/2014/03/17/pepsico-enters-at-homecarbonation-market-before-c.aspx
7. http://seekingalpha.com/article/2018301-pepsico-ceo-discusses-q4-2013-resultsearnings-call-transcript?part=single
8. http://advisor.marketscope.com/SP/msa/reports.pdf?reportURL=/indsurv/fnb/fnb.pdf
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Recommendation for PPG Industries (Ticker: PPG)
Analyst: Marin Decaudaveine
Recommendation: SELL
Target price (6/30/2015):
Closing Price (4/10/2014):
$181
$189.96
18
2013 PPG Overview
19
Why selling PPG?
•
Very high return last year: 63.80% (S&P 500 return last year: 34.93%). Sell PPG to
secure these gains
•
Transitions optical business separation, which was very profitable, and had excellent
margins (29.2% versus 9.4% for the whole company)
•
Exposure to the risk of raw materials inflation. Titanium dioxide purchases are 70% to
80% of the cost of goods sold of the coatings business (84% of the total revenues of
PPG in 2013).
•
Architectural coatings segment is weaker than other coatings segment, despite the
construction market recovery. Due to fewer competitive advantages.
•
PPG’s performances are tightly linked to global economy.
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However, PPG has some strengths
•
Current PPG’s portfolio shift. Focus on coating activity (2004: 56%, 2014: 90%). Strong
acquiring activity, and a lot of divestitures. Coatings manufacturing industry benefits
from many positive points. Low capital intensive industry, stable earnings/cash,
consolidating industry. High growth potential. Results improved in the long run.
•
25% of the firm's sales are from emerging regions. It will drive growth, because the
western regions expand at a slower rate.
•
High return of cash to shareholders ($1.35 billion in 2013), through buy-back and
dividends.
21
Questions?
22
Rio Tinto (Ticker: Rio)
Analyst: Garett Mahoney
Recommendation: “Sell”
Target Price: $60
Today’s Price: $56.77
23
Rio Tinto (Ticker: Rio)
Analyst: Garett Mahoney
Segment Revenues
Segments:
7%
Iron Ore
Aluminium
Copper
Energy
Diamonds &
Minerals
3%
10%
47%
11%
Iron Ore
Aluminium
Copper
Energy
22%
Diamonds & Minerals
Other Operations
24
Rio Tinto (Ticker: Rio)
Analyst: Garett Mahoney
Price of Aluminium
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
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Rio Tinto (Ticker: Rio)
Analyst: Garett Mahoney
Price of Iron Ore
$160.00
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
$0.00
May-13
Nov-13
Jun-14
Dec-14
Jul-15
Jan-16
Aug-16
Mar-17
26
Rio Tinto (Ticker: Rio)
Analyst: Garett Mahoney
China’s Influence
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Rio Tinto (Ticker: Rio)
Analyst: Garett Mahoney
28
Rio Tinto (Ticker: Rio)
Analyst: Garett Mahoney
29
Rio Tinto (Ticker: Rio)
Analyst: Garett Mahoney
30
Recommendation
 China’s economic and political changes will negatively impact multiple
segment revenues.
 Significant impact on iron ore prices.
 Development of GHOST Cities cannot be sustained. China’s
consumption will be cut.
 Aluminium demand and price increase will be overshadowed by Chinese
policy changes.
 Poor HPR and Risk-Adjusted Returns shows investment would be more
beneficial in Sector ETF.
 Target Price: $60
31
Recommendation for Schlumberger Ltd (Ticker: SLB)
Analyst: Jordan Fuentes
Recommendation:
HOLD
Target price (12/2015): $114.00
Closing Price (4/14/2014): $98.46
Regions:
Segments:
% of Revenues
% of Revenues
-0.49%
35.19%
27.05%
38.26%
0.98%
23.88%
27.32%
30.70%
17.12%
Reservoir Characterization
Drilling
North America
Latin America
Production
EU/CIS/Africa
MidEast/Asia
Eliminations & Other
Elimination & Other
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Recommendation for Schlumberger Ltd (Ticker: SLB)
Analyst: Jordan Fuentes
Recommendation:
HOLD
Target price (12/2015): $114.00
Closing Price (5/07/2014): $97.34
Positives:
• Technological Innovation and Efficiency
• Financial Performance against competition
• Industry outlook quite positive
Negatives:
• Highly Dependable on expenditures from Oil and Gas industry related to the
Exploration and Production of hydro-carbons.
• Subject to risk related to foreign exchange and geo-political events
• Alternative Energy production
Competitors:
Halliburton Company (HAL)
Baker Hughes Incorporated (BHI)
Weatherford International (WFT)
33
Technological Innovation: SLB
• 1.4 billion invested into
R&E
• Over 125 R&E facilities
worldwide
• Involved in optimization of
hydro-carbon rigs.
• Improved efficiency for
customers
• Shale, Fracking, Deepwater E&P
• New drill bit can penetrate
92% further than traditional
drills bits.
• World Record for shortest
time between Exploration
and Production: 14 Months
• Improved efficiency seen in
production and financials.
• Wearable Intelligence:
Google Glass
34
Financials Advantage
• Expanding Margins
• Double Digit EPS growth
• FCF Growth unmatched by
competition
• Improved 2013: Asset
Utilization, Inventory
Management
Operating Margins:
Annual
WFT
BHI
HAL
SLB
0%
5%
10%
2012
15%
20%
25%
2013
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Recommendation Stryker Corporation (Ticker: SYK)
Analyst: Bryan Deshayes
Recommendation:
BUY
Target price (12/2015): 93
Closing Price (5/07/2014): 82.14
Company Overview
 2013 Revenue : $9.02 Billion
- 4.2% Increase from 2012
 Segments
- Reconstructive (4.8% increase)
- MedSurg (2.9% increase)
- Neurotechnology and Spine (5.6% increase)
Sales
19%
44%
37%
Reconstructive
MedSurg
Neurotechnology
and Spine 36
Stryker Corporation
 Strengths
- Recent Acquisitions : MAKO, Trauson, Pivot,
Patient Safety Technologies
- Fastest Long-Term Growing Dividend
- Research and Development
Future Outlook
- Reduced Cost Trend for Healthcare Providers
- Lower Expenses (Reduced Non-Recurring Costs)
37
Stryker Corporation
Opportunities
- International Expansion : Emerging Markets
- Aging Population (Over 65 to double by 2030)
- Increased Obesity
 Threats
- New Entrants in the Market/Competition
- Regulation
- Litigation/Lawsuits
38
Stryker Corporation
Questions?
39
Recommendation for Union Pacific Corporation (Ticker: UNP)
Analyst: Kathy Hollingsworth
Recommendation:
BUY
Target price (12/2015): $206
Closing Price (5/0/2014): $184.84
2013 Performance
 Revenues
$21,963 (+5.%)
 Net Income
$4,388 (+11.3%)
20% Net income Margin (+1.2%)
 Earnings per Share Diluted
$9.42 (+13.92)
 Dividends
$2.96 (+18.88%)
Payout ratio 30%
Feb qtr $.91 (+15%)
Strengths/Opportunities
•
•
•
•
•
•
•
•
•
•
•
•
Current leader in the industry
Strong Brand Recognition
Operations are tied to the economy
Diversified commodity mix
Only railroad to have all six ports to Mexico
Dividends increase, 1-3x p/ year PO ratio low 30s
$60 million buybacks until 2017
Outperformed rail industry and S&P 500
Balance sheet healthy-Lowest debt-to-equity ratio .5
Investing capital into networks and infrastructure to grow
More manufacturing in Mexico (especially cars)
Investing in technology for locomotives
41
Weaknesses/Threats
• Legacy contracts
• Railroad Unions
• Revenues tied to industry
commodity performance
• Volatile fuel costs
• Burlington North Pacific has
parallel lines
• Enforcement of fuel
surcharges
• Pending law suits regarding
price fixing
• Coal Industry/Natural Gas
Competition
• Pipelines
42
Conclusion





Union Pacific Corporation
Leading the Rail Industry
Maintains strong financials
Best choice among industry competitors as fuel costs rise
Prepares itself to grow with the forecasted economic rise
Taking care of their investors
It’s a buy.
43
Walgreens Company (WAG)
44
Walgreens Company (WAG)
Analyst: Thai Yaparwong
Recommendation: BUY
Target price (12/2015): $76.00
Closing Price (5/07/2014): $65.43
Company Overview
 Over 8,600 Locations
- 408 Healthcare Clinics
 Revenue: $72.2 B (+0.8%)
 Net Income: $2.3 B (+10.6%)
 Prescription Drugs
 Front End Products
2013 Revenue Breakdown
10%
Prescription Drug Sales
27%
General Merchandise
63%
Non-prescriptions Drug
Sales
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Walgreens Company (WAG)
Analyst: Thai Yaparwong
Recommendation: BUY
Target price (12/2015): $76.00
Closing Price (5/07/2014): $65.43
Reasons for Recommendations
 Strategic Partnerships
 Alliance Boots
 Europe, Asia & Africa
 AmerisourceBergen
 10yr. Distribution Agreement
 Global Platform Synergies
 2014 Projected: $425M
 2016 Goal: $1B
46
Walgreens Company (WAG)
Analyst: Thai Yaparwong
Recommendation: BUY
Target price (12/2015): $76.00
Closing Price (5/07/2014): $65.43
 Market Presence & Reputation
 Balance Rewards Program
 Household Name
 Key Drivers
 Creating a Well Experience
 Advancing Community Pharmacy
 Establishing an Efficient Global Platform
 Risks
 Uncertainty of Government Regulation
 Uncertainty of International Economies
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