J.C. Penney Valuation

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2016 Brooks Case Competition Battling the Oil ‘Death Spiral’ Team 7: Johanan Tai, Xin (Kathy) Zhang, Kevin Wang
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J.C. Penney Valuation. Brooks Associates, Inc. Agenda. Projections and Recommendation Financial Analysis New Remodeling Strategy. Recommendation. Stock not Undervalued No Additional Purchases. Weighted Average Cost of Capital. Future Projections. Pricing Strategy. Fair-and-Square - PowerPoint PPT Presentation

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2016 Brooks Case Competition

2016 Brooks Case CompetitionBattling the Oil Death SpiralTeam 7: Johanan Tai, Xin (Kathy) Zhang, Kevin WangOverviewPart I: Industry OutlookFitting the Oil Price Trend to a distribution Traditional versus Horizontal Tracking AnalysisSaudi Arabia Strategy & EffectivenessPart II: Firm AnalysisConocoPhillips & Antero ResourcesFirm Strategies & RecommendationOverall Investment Attractiveness Oil Prices Fitted to a Lognormal DistributionSimilar to stock in the sense that prices cant be negativeRight skewed distributionLognormally distributed for both 2 yr and 5 yrAnnualized Parameters: Alpha and sigma

Lognormal Data

Based on rate of change on a daily basisContinuously Compounded RoC2 year had higher volatilitySignificance of forward vs backward looking

averages and standard deviation based on the rate of change from day to day so we can find the annualized expected alphawe then annualized the data based on 365 for the next calculationalpha is calculated using the annualized mean and stdevbegining oil price of 26 can be interpreted as S0 and the two intervals can be S(1)with all information, the Z score can be calculated as well as the probability32 % and 78% that oil will stay within the 50% range. Breakeven Analysis Assumptions: inelastic supply existent platforms mainly variable costs

HorizontalVerticalPrice/barrel34.0134.01VC/barrel13.6040%22.1165%BOPD8040both > breakeven, Breakeven AnalysisOther factors: Horizontal ---more initial and storage costs ---pollution ---more time and water ---hydraulic fracturing new investments--lower/slower; easy money.Saudi Arabias Role in OPEC2nd largest Country in terms of Reserves (~268 Billion Barrels)Largest OPEC producer (11.62M Barrels/day)Strategy: Refusal to give up market share against the USBelief: US has high production cost compared to Saudi Arabia

"The Hidden Agenda Behind Saudi Arabia's Market Share Strategy | OilPrice.com." OilPrice.com. N.p., n.d. Web. 19 Feb. 2016.Additional not just Saudi, but lifting sanction on IRANHow Successful are they?US output growth in 2015 outpaced Saudi Arabia and other oil producersUS has higher delta in production rates US companies have high debt and fixed costs

"The Hidden Agenda Behind Saudi Arabia's Market Share Strategy | OilPrice.com." OilPrice.com. N.p., n.d. Web. 19 Feb. 2016.Higher production DESPITe higher prices previouslyRevenue MixAntero Resources

ConocoPhillips

ConocoPhillipspie...Antero Resource Strategy & RecommendationCurrently one of main shale oil playersShale drawbacks/costs Experienced a 93% increase in production of NGLPrice per Mcfe increased from $4.31 to $4.73NG uses and potential future in North America

ConocoPhillips Strategy & RecommendationOperations in 27 countriesLarge majority of US energy marketCurrent cuts and lossesBest course of action: short hedging

Financial Ratio Analysis of ConocoPhillips/Antero