Comparative Valuation of Best Values Among Major Oil and Integrated Gas Companies

By: Steve Rubis

Top Values in Major Oil and Integrated Gas Industry

Recommendation
As stated in my article on the entire industry, Eni S.p.A. (E) and ConocoPhillips (COP) are the best values for investors. Each company should realize their true asset values as the price of oil continues to hover around $70 per barrel.

Valuation Comparison
Table 1: Equity Valuations for the Top Values in the Major Integrated Oil and Gas Industry


Stock Universe
Table 2: Undervalued universe for the Major Integrated Oil and Gas Industry


Both Eni S.p.A. and ConocoPhillips exhibit strong capitalization rates. Their earnings yields are both over twice the going rate on a 10-year Treasury note. Lastly, the Altman Z Scores are around 2.7, which are acceptable, and suggests that bankruptcy is not likely any time soon.

Valuation Calculations
Table 3: Take Out Valuations


Some might argue that Take Out Value calculations have no real meaning given the size of the companies in question. The beauty of this test is that it gives investors a sense of what it would take for a Private Equity Firm to take these entities private. While a take out is unlikely, it is still worthwhile to understand what these companies could be worth privately. Their private values seem to be substantially more than their current prices.

Table 4: Relative Valuation


On a relative basis, each company seems undervalued in terms of the rest of the industry. Furthermore, the margins of safety are quite significant, which is also seen in the Earnings Power test.

Table 5: Earnings Power and Reproduction Values


The only stock which does not pass the Earnings Power versus Reproduction Value is Repsol YPF SA. Both ConocoPhillips and Eni S.p.A. exhibit significant margins of safety under this comparison.

Table 6: Weighted Average Cost of Capital


*Note: The author cannot be held responsible for any money gained or lost based on trades undertaken after reading this research.