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.
After a challenging 2017/18 period, the shifting corporate strategy to a more moderate pace of growth with wider spaced development has taken hold at PE and it’s showing how well the asset base can perform. Further, multiple value levers can still be pulled with PE reviewing a potential water sale and highlighting the mineral interests. This was as good of a quarter as we’ve seen amongst the E&Ps and with PE now consistently delivering or beat expectations while SMID cap peers have faced more challenges, we see plenty of reason for the EV/EBITDA multiple to breakout from the pack. Outperform.
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.
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%.
Our E&P Index finished the week flat, underperforming the +0.8% move in the S&P500 and the big +4.7% jump in WTI. Part of the driver for the flat E&P week was a split decision amongst the sub-groups with the oil focused producers positive while the nat gas producers were down 2%, giving us a perfect intro for this weekend as we provide feedback from GasWeek and some apropos music inside.
It wasn’t a great week for the E&Ps, as underperformance returned with our Index -3.0% vs. the S&P500 +1.7%. The gap was mostly driven by WTI’s -1.6% move despite the U.S.-China truce at the G20 summit and the OPEC meeting coming and going as expected. Seems as if the extension of the cuts through 2020 was tough to outweigh global demand growth concerns and U.S. supply growth, continuing the thought trends from the past few weeks.
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