By: Matthew Lee, Sammy Pahwa and Kevin Climans
3rd largest integrated energy company in the
U.S. by market cap
Upstream = exploration and production
Downstream = refining and distribution
Oil and natural gas reserves in over 30
countries
Assets of $155 B
Reserves of 8 B BOE
1. Not hostage to commodity prices
2. Less risk than Canadian oil companies
3. Dividends and share repurchases
4. Turnaround story
Conservative oil and natural gas price
exposure
Stock can rise whether these commodities
are falling, flat or rising
Canadian integrated oil companies (ex.
Suncor) have higher oil sands exposure,
therefore:
1. Dependent on high oil prices
2. Political risk - condemnation from Obama
administration
Pelosi's not going to slip on oil sands
“...public opinion hasn't been
helped by the major Enbridge
pipeline leak into a Michigan river
last month”
“The Democrats are fighting the
final stage of the Keystone
Pipeline project linking the oil
sands to Texas refineries.”
Don Martin, National Post · Wednesday, Sept.
8, 2010
ConocoPhillips – 3.74%
Chevron – 3.45 %
Exxon – 2.78%
BP – N/A
Management plans annual increases in
dividends
Targeted $10 B in 2010-2011
$8.8 B remaining
Shifting expenditures to E&P from R&M
Scaling out of non-core assets
Selling Russian LUKOIL and Syncrude stake
Targeted asset sales - $10 B by end 2011
Cash from asset sales will be used for:
Exploration and Production
Reduce debt
Dividend increases
Share repurchases
According to management less than 1% of oil
and natural gas production is from areas
affected by Gulf of Mexico moratorium
Rating: Buy on Weakness
Price Target: $67.20
10.5x P/E and $6.40 EPS
Entry: ~$58
Exit: $65-$67
Expected return: 12- 15%
By: Matthew Lee, Sammy Pahwa and Kevin Climans
• Overview
• Investment Thesis
• Why we’re betting on the holidays
• Cool gadgets
• Best Buy’s Business Model
• Risks and competitors
• Valuation
• Entry point/Technical Analysis
• Conclusion
• Multinational retailer of electronics
• Market Cap of $17.04B
• Compete in 5 segments (in order of revenue):
– Consumer electronics, Home Office,
Entertainment Software, Services, Appliances
• Operate in the United States, Canada,
Europe, China, and Mexico
• Posted $0.60 Q2 2010 EPS, beating estimates
of $0.42
• Play on holiday season
– Analysts are predicting an improvement from last
year
• Good business model
– Have buying power with suppliers, growing
relationship with Apple
– China exposure, growing middle class population
• Expected demand for new gadgets in the
coming months
• Lots of cash – dividends and buybacks
Strong back to school season
U.S. data shows 4.7% increase in electronics sales
in September, mainly in the $500-$1000 range
Usually strong predictor of good holiday season
Most forecasts are positive for the holiday
months (NRF – 2.3%, ICSC – 3 to 3.5%,
Deloitte – 2%)
Innovative products are launching
Smartphones
iPhone 4, Blackberry Torch, Android phones
Video games
Playstation Move, Kinect for Xbox 360
E-book readers
Apple products
Google TV – exclusive to Best Buy
No commission, no pressure
Consumers still need help in their electronics
purchases
Largest player in market niche
Economies of scale, buying power
Competitors: Wal-Mart, Target, Radio Shack,
Amazon, Dell, E-Bay
Rating: Buy on Weakness
Price target: $44.75
12.5x P/E and $3.58 EPS
Entry: ~$39
Exit: $42-$44
Expected return: 7-12%