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Deutsche Bank Warns, Energy Stock "Valuations Are Unsustainable" Unless Crude Hits $70 By 2H15
We previously noted the extreme spike in S&P Energy sector stock valuations (and the fact that energy sector earnings will have to surge by 70% in order for this exuberant to be 'discounted' correctly). Now Deutsche Bank has run the numbers and warns that in order for S&P Energy to now be trading at what we would consider a fair ~15x normalized EPS, $70/bbl oil must return and be sustained by 2H15.
Energy Valuation
Near and longer-term oil prices are very uncertain. Such uncertainties are best evaluated relative to what stocks price in.
We recognize that firms are quickly moving to lower their cost structure, but in order for S&P Energy to now be trading at what we would consider a fair ~15x normalized EPS (vs. 20+ 2015E EPS), $70/bbl oil must return and be sustained by 2H15.
Future oil prices and corresponding profits are debatable, but the sector’s PE on normal EPS is unlikely to exceed 15 given the recent reminder of the industry’s commoditized and highly competitive nature.
We expect $100-150bn of asset write-downs by Energy in 2015 (~$10 of S&P EPS).
Writedowns are excluded from non-GAAP EPS, and reduce future depreciation costs to help EPS, but such charges weigh on PEs as they signify the difficulty in earning strong returns through cycles.
Source: Deutsche Bank
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....but, everything is awesome. hasnt DB seen the movie?
Do people still trade these markets? I mean, this is just a completely upside down unnavigable Escher drawing.
Regards,
Cooter
Cue the FED, rolling out of spooz purchases into crude futures purchases.....
Dramatic consequences.
No more Russian boys for Obongo?
Fuck Deutsche bank...
http://dailybail.com/home/busted-deutsche-bank-raided-in-carbon-tax-frau...
More here:
SunEdison gets $410 million loan for First Wind acquisition
http://www.bizjournals.com/stlouis/morning_call/2015/02/sunedison-gets-410-million-loan-for-first-wind.html
SunEdison, the Maryland Heights-based solar developer, has received a $410 million loan from Deutsche Bank to help pay for its $2.4 billion acquisition of First Wind, a U.S. developer, owner and operator of wind projects.
The loan carries a 3.75 percent interest rate and matures in January 2020.
The loan will be paired with financing SunEdison secured earlier this month.
The First Wind acquisition, which closed last week, added more than 1.6 gigawatts of pipeline and backlog projects for SunEdison. Those projects will eventually be sold to TerraForm Power, a subsidiary of SunEdison that serves as a yieldco for SunEdison, which owns a majority of the company.
The deal was paid for with an upfront payment of $1 billion, including the assumption of $361 million of debt at closing, and an expected $510 million of earn-out payments over two and a half years.
First Wind CEO Paul Gaynor has been appointed executive vice president of SunEdison's North American Utility and Global Wind business unit.
SunEdison shares were trading at $20.51 per share at market close Tuesday.
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Fat Larry Summers, DE Shaw et. al.cashed in on this... stay tuned.
Valuations don't matter, Debt doesn't matter, Fundermentals don't matter, nothing matters.
It is almost as if things are being run by central command. Perish the thought.
how about shake shaks and grilled cheese trucks and $20b burrito chains?
how about $30b car companies that sell 30,000 cars a year?
how about $10b camera on a stick?
for that matter even, how about a company that is selling $700 phones to 1 out of every 40 people in the whole freakin world annualy at fat margins based on Chinese slave wages and tax dodges?
how about all the market cap in bankrupt corrupt banks that depend on forcing ever more debt on the insolvent population?
What has to happen to justify and sustain that?
don't worry about all that shit, right, it's energy that's unsustainable and unnecessary - that must be why we're fighting wars for it all over the planet
I'm waiting for Yellen to start issuing War Bonds with a picture of our Peace Prize winner on them.
You don't say? Well Duh.
Lets ask the guys leveraged 53-1 their take on risk.
Even at $70, one might run into the small problem of the highest cost marginal barrel (and quite a few of them at that) still outpacing marginal revenue.
just wait for 1 st quarter earnings - should be ugly
just wait for 1 st quarter earnings - should be ugly
Doesn't matter, they will just blame it on the bad weather just like last year.
I'm glad everyone is crying doom about energy stocks and oil prices. You know what happens when they do that.
The markets are always slow to react to the oncoming storm:
1926 - house prices softened
1927 - car sales dropped
1928 - construction leveled off
But in wall street the music still played until 1929.
DB should worry about tech bubble more than 15xP/E
Here more on OVERVALUED tech stocks:
http://prudentvalueinvestor.blogspot.com/2015/02/linkedin-corporation-ln...
Banks have one product debts/loans.
The banks product is more popular than even the iPhone.
The banks product takes money from for the future for people to spend today.
The money is spent and the future is coming.
CRASH.
Usury was illegal in ancient times and with good reason.
Which makes it ironic that the same religion they claim their moral entitlement to collect on declares their whole enterprise illegal in the first place.
You can't hear me but I'm playing the worlds smallest violin.
Where does oil need to be to get my Mac & Cheese food truck valuation up to the $7 billion mark?
Sounds more like those highly leveraged oil futures and oil stock puts that are hoping for $40 oil aren't working out for DB....
Oil? Who the fuck needs that barberous relic, you can't even eat it, not even in colloidal suspension. And if I had a fucking huge empty tank, then yeah, at these prices my inventory might be at record highs. But on a bright note, you can burn oil AND paper derivatives.
yeh thats right Mr know it al Tyler 70 is the number or all hell is going to break lose as production declines....listen to PXD EPS call and do some work vs oil propaganda u have been spreading
According to TheStreet.com on 1/21/2015 none other than DB itself has a PE of 31.9 -- just a banker's hair over 15??? Might that indicate that DB's price is 'unsustainable' too?
TRANSLATION:
DB says that if oil prices don't go back to $70 by fall, then their investments in Eastern Europe and developing nations will default, which will break DB, which in turn will then cause debt contagion to all the other major international banks - and Federal Reserve owner banks, culminating in the collapse of every fiat currency everywhere.