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Energy Sector Stock Recommendation

Energy Sector Stock Recommendation. Zach Rochon Logan Cotter Adam Claugus Joseph Hsieh May 26 th , 2009. Energy Recommendation. Increase 120 basis points to par with S&P500 at 12.51% The sector is currently undervalued with strong growth potential within our one year horizon

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Energy Sector Stock Recommendation

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  1. Energy SectorStock Recommendation Zach Rochon Logan Cotter Adam Claugus Joseph Hsieh May 26th, 2009

  2. Energy Recommendation • Increase 120 basis points to par with S&P500 at 12.51% • The sector is currently undervalued with strong growth potential within our one year horizon • Energy’s performance against the S&P500 • QTD:11.18% vs. 6.48% • YTD: (2.25%) vs. (2.49%) • We expect this trend to continue and improve long-term

  3. Price of Oil

  4. Stock Valuation

  5. Transocean: RIG • Industry: Oil & Gas Drilling and Exploration • Company: Provides offshore contract drilling services for oil and gas wells worldwide • MKT Cap: $23 Billion • Comprises 19% of Energy Sector in SIM • (4,470 shares) • Cost Basis: $62.70 • Current Price: $74.20 • ROE: 24.8% (TTM)

  6. Transocean: RIG

  7. Transocean: RIG • Weighted Average Value: $197.19 (165% upside) • DCF Valuation • $168.68 • Sensitivity • Low: $127.19 • High: $266.40 • Multiples Valuation • P/Fwd: $167.94 • P/CF: $221.76 • P/Sales: $258.88 • Average Multiples: $216.19

  8. Business Analysis • $39 billion contract backlog for the next five years provides stable source of revenue. • Deep-water market is positioned to expand substantially due to large oil reserve discoveries. • 68 deep-water vessels is more than double the capacity of its next largest competitor.

  9. RIGommendation • BUY Transocean (RIG) to increase sector weight by 120 bps

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