Inside this week we have two features, the first is we look at the S&P 500 Energy Index vs. the ISM Index as it broke 50 this week. FYI, Energy was the best performing sector this week. Second, we sat down with HES this week for a catch up, with notes inside.
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It’s back to the grind this week and in preparation for the upcoming conference season, inside this weekend we provide a list of sector and company level questions across our coverage universe. We touch on the key issues around growth rates, return of capital, M&A, and asset specific questions/catalysts that can drive sector and stock performance through the rest of the year.
Thanks to all the companies and clients that participated in our Denver E&P Summit. We hope to have more to smile about next year, as the sector swoons continued this past week with our E&P Index -3% vs. the S&P500 -1% and WTI +1. Inside this week, we provide some additional takeaways from Denver and discuss the mystery chart below, as it’s very telling of what investors think of the Energy sector.
We’re providing quick snapshots and commentary as we update estimates post 2Q results across our coverage group.
We’re glad to be on the backside of earnings. Lots to discuss with our E&P Index -6.1% after this brutal week vs. the S&P500 -0.5% and WTI -2.4%. Over the three-week 2Q earnings period, our E&P Index fell 20%...not quite the outlook we were expecting heading into these updates. Additionally, this weekend we’re also highlighting the August DEPTH model, with the quant dashboard now up and running. It’s very user friendly and it shows you how a stock’s quant ranking has changed over the past two years and what factors are most important going into the current ranking. Last, with Premier League action starting up this weekend, we show the odds for each team, with Man City and Liverpool the clear favorites.
For a two-basin company, it’s been anything but a simple year for CLR with a lot of moving pieces. However, the 1H updates have also shown how CLR is getting more out of its asset base, with efficiency gains coming through better than expected and numerous levers that can be pulled to create near-term (water business) and long-term (minerals) value. The stock feels like it’s been clouded by the multiple updates so far this year, but we like how the total return strategy is coming together to deliver value from multiple angles.
This week we take or cues from Friday’s EOG conference call (8/2/19) as they 1) discussed there are multiple scenarios being devised for 2020 and 2) continue to view the profile as competitive vs. the S&P500. We look at both inside, outlining three different growth scenarios over the 2019-21 period at $45/$55/$65 WTI pricing and showing how the current multi-year outlook compares the S&P500 on FCF Yield, Dividend Yield, ROCE, EV/EBITDA, and Revenue Growth. Additionally, with EOG’s stock performance essentially mimicking sector sentiment over the past year (hitting an all-time high in Sept 2018 vs. a 1-year low this week), we broke down EOG’s investor based into five categories (Generalist, Growth, Value, Index, Hedge Fund) and looked at how the investor base has changed over the past five years.
Driven by sector underperformance vs. the S&P500, M&A, and cost structure, investors are increasingly pushing for change at the Board of Directors level, seeking greater influence over corporate direction. Fresh off proxy battles at PDCE and EQT and a new one starting at OXY, we reviewed the Board composition, tenure, and background of our coverage to see how producers have adapted under pressure for change in management compensation and strategy shift. Key takeaways below with company by company details inside.
This past week our E&P Index was --4% vs. the S&P500 +2% and WTI +1% with sector underperformance largely due to the 9% decline in the natural gas focused producers following 2Q results from EQT, RRC, and COG and the continued slide in front month pricing to $2.15/mmbtu. We touched on our nat gas thoughts on the Friday webcast, so inside this week provide our thoughts into the upcoming week’s earnings releases.
Rough week for the E&Ps again, largely as a result of WTI’s 7% decline. For the week our E&P Index was -8% vs. the S&P500, bringing the YTD underperformance vs. the market to 27%.
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