Recommendation: Buy Chevron and Occidental Petroleum (CVX & OXY) Green & Gold Fund
Integrated: Chevron • 2 nd largest US traded oil company by market cap. • $198 B in 2010 revenue, $19 B net income • 2. 763 B in net oil equivalent production • 58, 000 employees and 4, 000 service station employees
Chevron: Strong Financials FCF Mgn 3 Yr Avg Total Debt/Total Equity Sum (Lower is better) Ticker Mkt. Cap. Div. Yield 5 Yr. Div. Growth FCF Yield WACC ROIC P/B P/E 3 Yr Avg ROE XOM 360 B 4 th 4 th 1 st 7 th 6 th 1 st 2 nd 30 CVX 190 B 2 nd 3 rd 2 nd 6 th 2 nd 2 nd 1 st 23 COP 88 B 1 st 2 nd 5 th 4 th 6 th 3 rd 8 th 34 HES 18 B 6 th 7 th 1 st 3 rd 5 th 6 th 47
Chevron: Strong Financials Measure CVX Top 4 Mkt. Cap. Avg. Dividend Yield 3. 38% 2. 73% 5 Yr Net Div. Growth 9. 11% 7. 41% FCF Yield 7. 11% 4. 48% 14. 64% 10. 34% P/B 1. 62 1. 53 P/E 8. 24 8. 87 P/E 5 yr Avg. minus Current P/E 1. 09 2. 20 19. 53% 13. 73% 3. 27 2. 74 9. 89% 20. 56% WACC ROIC 3 Yr Avg. ROE FCF Mgn. 3 Yr Avg. Total Debt/Total Equity
5 20 1 11. 2 5 20 11. 5 20 1 20 0 10. 2 5 20 10. 20 5 10. 75 0 20 9 09. 2 5 20 09. 20 5 09. 75 20 20 8 08. 2 5 20 08. 20 5 08. 75 . 20 5 07. 75 07 20 07 . 2 07 20 20 75 6. 20 0 CVX: Dividend History CVX Dividend (CAGR: 8. 19%) 0. 9 0. 8 0. 7 0. 6 0. 5 0. 4 0. 3 0. 2 0. 1 0
CVX: Replacement Ratio
CVX SWOT Analysis Strengths Very large, well established Moderate Beta of 0. 98 Strong financials; good track record in most aspects Weaknesses 2010 Replacement ratio < 1, but 10 year avg. = 1. 01 Price correlated to Brent while Brent-WTI spread at highs Opportunities Reserve growth through acreage acquisitions Oil consumption increases abroad Threats Tax increases Environmental concerns Global economic weakness
CVX Investment Information Prev Close: 94. 66 1 y Target Est: 108 52 wk Range: 80. 41 - 109. 94 Avg Vol (3 m): 10, 954, 200 Market Cap: 189. 6 B P/E (ttm): 8. 33 EPS (ttm): 11. 45 Div & Yield: 3. 12 (3. 38%) Forward P/E: 7. 24
E & P: Occidental Petroleum • Largest US traded E&P by market cap: 61. 57 B, nearly 2 x as large as next largest Anadarko at 32. 8 B • Highest dividend yield (2. 45%) in top 6 US E&P, 2 nd in top 16 • 3. 36 B barrels of oil equivalent (BOE) proven reserves as of 2010 end. • 19 B in 2010 net sales, 4. 53 B net income • Has outperformed S&P last 12 years (though currently trailing S&P YTD)
Occidental: Strong Financials Measure OXY Top 4 Mkt. Cap. Avg. Dividend Yield 2. 45% 1. 24% 5 Yr Net Div. Growth 18. 29 9. 15 FCF Yield 2. 52% 0. 00% WACC ROIC 12. 63% 9% P/B 1. 75 1. 39 P/E 10. 49 14. 14 P/E 5 yr Avg. minus Current P/E 4. 98 7. 45 15. 11% 7. 49% 23. 47 8. 54 12. 08% 34. 43% 3 Yr Avg. ROE FCF Mgn. 3 Yr Avg. Total Debt/Total Equity
Occidental: Reserve Growth OXY Proved Reserves (CAGR: 4. 35%) 3500 3400 3300 3200 3100 3000 2900 2800 2700 2600 2500 2006 2007 2008 2009 2010
Occidental: Dividend Growth
Occidental: Sales Growth
Occidental: Correlation to Oil (Timing)
SWOT Analysis Strengths Largest US E&P Strong reserve, sales, and dividend growth Strong financials compared to peers Weaknesses New CEO in 2011 (unproven but promoted from COO) Opportunities May be currently underpriced Continuing oil shale acquisitions and international plays Threats Tax increases Environmental concerns Global economic weakness
OXY Investment Information Prev Close: 75. 72 1 y Target Est: 113 52 wk Range: 66. 36 - 117. 89 Avg Vol (3 m): 5, 976, 330 Market Cap: 61. 54 B P/E (ttm): 10. 49 EPS (ttm): 7. 08 Div & Yield: 1. 84 (2. 60%) Forward P/E: 8. 47
Investment Theses • Chevron is a large cap integrated financially outperforming its peers. A respectable dividend with a history of growth protects against the downside while a moderate beta and solid correlation to oil prices should cause it to also do well in an up market. • Occidental Petroleum is a large cap E&P with international production diversification and is a financial standout among its peers. A beta slightly over one paired with an acceptable dividend give it an upside and downside protection. Now appears to be a good time to buy considering the tight correlation to oil and the discount to said correlation.
Portfolio Placement / Recommendation $/SH. # TOTAL $ WT. BETA WT. STD. BETA DEV. WT. STD. TTM DIV. $ YIELD WT. YIELD DESCRIPTION AMLP 15. 3 350 5355 0. 1276 0. 80 0. 10 0. 02 0. 003 0. 99 0. 06 0. 01 Pipeline ETF CVX 94. 61 100 9461 0. 2254 0. 77 0. 17 0. 06 0. 013 3. 00 0. 03 0. 01 Oil Integrated FEN 26. 16 200 5232 0. 1247 0. 92 0. 11 0. 05 0. 006 1. 85 0. 07 0. 01 Pipeline CEF OXY 78. 56 100 7856 0. 1872 1. 02 0. 19 0. 11 0. 021 1. 76 0. 02 0. 00 Oil E&P PXJ 17. 47 400 6988 0. 1665 1. 34 0. 22 0. 10 0. 016 0. 08 0. 00 Oil Services Fund VPU 70. 74 100 7074 0. 1686 0. 61 0. 10 0. 03 0. 005 2. 69 0. 04 0. 01 US Utility Fund TOTAL $41, 966 $10. 36 WT. AVG. YIELD 3. 56% BETA 0. 91 STD. 0. 064 DEV.
Portfolio Placement / Recommendation BUY 100 shares of CVX at Limit Price of $95. 00 ($9, 500, 2% of portfolio) Holding Period/Exit Strategy: 2+ years; reassess thesis at least every three months. BUY 100 shares of OXY at Limit Price of $80. 00 ($8, 000, 1. 75% of portfolio) Holding Period/Exit Strategy: 2+ years; reassess thesis at least every three months.
Portfolio Placement / Recommendation Sector : Energy Projected Holdings: AMLP, FEN, CVX, PXJ, OXY Target Sector Allocation: 8. 54%, ~$38, 860 Projected Sector Allocation: 7. 62% , ~$34, 660 Remaining Allocation: 1. 92%, $4, 200
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