1. Analysts: Matthew Coyne and Jennifer Downing
Energy Sector
Analysts: Matthew Coyne and Jennifer Downing

2. Agenda
Overview
Halliburton
Kinder Morgan
Valero
Recommendation

3. Energy Sector Weights
Update: as of quarter end s&p weight is 6.01 and sim weight is 5.23

4. Performance
Performance of energy sector vs s&p over the past 5 years

5. Crude Oil
Crude oil vs energy - strongly correlated

6. Halliburton Co. (HAL) - 1.64%, $42.71
Current Holdings
Halliburton Co. (HAL) %, $42.71
Kinder Morgan Inc. (KMI) %, $19.16
Going into this, we are expecting oil prices to reach 55 or 60 by the end of the year, just to keep in mind, we are recommending to hold halliburton where it’s at, and to trim kinder morgan

7. Halliburton Co Market Data Oilfield Services Company Ticker: HAL
Price: $44.11 (7/17/2017)
Market Cap: $37,006.7M
Beta: 1.07
Dividend Yield: 1.62%
Target Price: $59.73
Upside: 35.41%
Oilfield Services Company
Second largest in their industry
Headquartered in Houston, TX
Divisions: Drilling and Evaluation & Completion and Production
A little background on what halliburton does. They’re is one of the world's largest providers of products and services to the energy industry related to the exploration, development, and production of oil and natural gas behind their competitor Schlumberger. They’re headquartered in houston texas. Their business operates in two divisions: completion and production and drilling and evaluation. Completion and production involves cementing, stimulation, intervention, pressure control, specialty chemicals, and completion services. Drilling and evaluation involves field and reservoir modeling, drilling, evaluation, and welbore placement solutions that enable customers to model and measure their well construction activities. They operate in 70 countries with having more of its sales occurring in north america.
Talk about data

8. HAL Performance

9. HAL Key Drivers & Risks Risks Oil price volatility
Exposure in shale industry
Dominance in pressure pumping
Keeping capital intensity to a minimum
Risks
Oil price volatility
Services sector still suffering from overcapacity and weakened demand
Rig counts
Environmental Risks
Political Risks
Exposure in shale industry
Dominance in pressure pumping- increased utilization and pricing in pressure pumping and well construction product service lines has helped drive revenue
Higher than expected profit, 16% increase in revenues compared to the first quarter, positive operating income from last years loss, outperformed major peers in every geomarket demonstrating their growth in global market share. This was driven by the strengthened market conditions in north america. Halliburton is confident about their ability to grow north american margins while remaining steady in their international business

10. Financials
Here is a look at Halliburton’s financials over the past 5 years. You can see that after the crash of oil the company took a huge hit and are still recovering.

11. Second Quarter Results

12. DCF
Consensus
59.73
34.9%

13. Valuation Analysis
Currently, Halliburton has no PE due to negative earnings, but analysts are optimistic about the future of Halliburton as you can see the higher P/E ratios forecasted for the end of year, ROE, and op margin

14. HAL Recommendation Target Price: $59.73
Current Price: $44.71 (as of 7/17/2017)
Upside: 35.41%
HOLD

15. Kinder Morgan Inc Market Data Energy Oil & Gas - Midstream
Ticker: KMI
Price: $19.55
Market Cap: $45.3B
Beta: 1.14
Dividend Yield: 2.56%
Energy Oil & Gas - Midstream
Operations in U.S. and Canada
Five Lines of Business - Natural Gas Pipelines, CO2, Terminals, Products Pipelines & Kinder Morgan Canada
Dividend reduced by 74% in from $1.93 -> $0.50
38% of natural gas consumed flows through KMI pipelines

16. KMI Performance

17. KMI Key Drivers & Risks Risks
Shale boom and investment in natural gas consumption
Since consumption of natural gas in the U.S. has grown by CAGR of 1%
Exportation of Natural Gas - Liquefied Natural Gas
Reduction of costs
Risks
Commodity price volatility
-Every $1 change in crude oil price per barrel would impact distributable cash flow by approx. $6M
Deleveraging debt while maintaining a growth profile
Political and Environmental Activism - halt major projects
Returning dividend growth
**Earnings Release 7/19/17**
-Beat EPS estimates
-Net debt decreased to $36.6B compared to $37.8B
-Announced 60% Div increase in 2018 and subsequent 25% increase through 2020

18. Financial Analysis - KMI

19. DCF
Consensus

20. Valuation Analysis

21. Valero Market Data Energy Oil & Gas - Refining
Ticker: VLO
Price: $67.43
Market Cap: $30.2B
Beta: 0.89
Dividend Yield: 4.15%
Energy Oil & Gas - Refining
Two Lines of Business - Refining and ethanol
15 petroleum refineries operating in U.S. , Canada and U.K.
11 ethanol plants in the U.S.

22. VLO Performance

23. VLO Key Drivers and Risks
Domestic & Global economic growth
Favorable trade relations
Sustained dividend growth (currently 4.15%)
Aggressive share buyback program over last couple of years
Risks
Regional and Global supply and demand for crude oil and refined products
Carrying value of inventories
Refining Margins - price of crude oil and feedstocks compared to market price of selling refined products
Government and environmental regulation

24. Financial Analysis - VLO

25. DCF
Consensus

26. Valuation Analysis

27. Recommendation
-Steady growth in oil prices in next 6-12 months to $55-60/bl range
-Companies living within their means and have adapted to sub $60/bl oil prices
-Improving fundamentals
-Reducing debt, increasing dividends and share buyback programs
-Increasing % capex spend through internal cash flow
HAL - most volatile with the price of oil. Hold based on belief that oil will continue to climb closer to $55-60/bl, reflecting more activity in U.S. domestic drilling that would increase revenue for HAL.
KMI - trim holdings….
VLO - buy, optimistic ...