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.

The Weeks Ahead

By: Steve Rubis

We thought it would be prudent to give readers an idea of what we are working on. The articles generated by the list below should be completed and posted over the next few weeks.

1.) DRS Technologies (DRS)
2.) Eni S.p.A. (E)
3.) Medical Instruments and Supplies
4.) Biotel (BTEL.OB) - micro cap in play, yes a legitimate penny stock!
5.) Medical Appliances and Equipment
6.) Arrhythmia Research Technologies - checking up on an old favorite
7.) Xyratex (XTRX)
8.) Neoware (NWRE)
9.) Grey Wolf (GW) - an old favorite generating a lot of press
10.) Medical Labs and Research Analysis
11.) Semiconductor Equipment and Materials

As usual we would like to thank our readers for their patience as we develop articles. We apologize for the lag time between our last analyses. The problem is that there are only so many hours to build our reports.

Note: author cannot be held responsible for money gain or lost from trades undertaken after reading our research.

Major Oil and Integrated Gas - Bargain Basement Valuations

By: Steve Rubis

Industry: Major Integrated Oil and Gas
Market Cap: $2.4 Trillion
Number of Companies: 22
Sales (ttm): $2.29 Trillion
EBITDA (ttm): $484.5 Billion
Net Income (ttm): $222.1 Billion

Recommendation
Major Integrated Oil and Gas companies are attractive from both valuation and earnings growth perspectives. As the price of oil continues to hover around $70, the major integrated oil producers should continue to see record profits.

Investment Thesis
ConocoPhillips and Eni S.p.A. offer investors the best upside reward with limited downside risk.

ConocoPhillips: currently being punished for the acquisition of Burlington Resources, creating a large exposure to the natural gas market. As COP continues to reduce debt, and if natural gas prices rise, the company should experience stronger profits, which will provide a catalyst for unlocking value.

Eni S.p.A.: according to our analysis, offers investors the best opportunity from a valuation perspective. The company sports a 40% capitalization rate and nearly $72 in book value. We like E from a pure valuation perspective, the company’s assets are quite undervalued in comparison to the industry. With shares trading near book value, we believe that investors have little downside risk, despite some analyst concerns about valuation.

Industry Metrics
Table 1: Key Financial Metrics for the Major Integrated Oil and Gas Industry


Valuation
Table 2: Average Per Share Values for the Major Integrated Oil and Gas Industry


Financial Health
Table 3: Altman Z Score for Selected Major Integrated Oil and Gas Companies


Business Prospects
Crude Oil Prices: prices continue to rise as strikes at refineries in Africa will affect production. This is partially offset by recent surprises in oil and gas reserves in the United States.

Ethanol: as crude oil prices rise, the government and others benefit by exploring other avenues of energy. If prices continue at the current level or go higher, look for tax cuts or other incentives to help investors and other entities to develop other energy sources.

Russia: any producers with exposure to Russian assets should do exceptionally well. As production and exploration occurs in Russia, these companies will benefit from added reserves and oil production.

Best Values:
1.) Eni S.p.A. (E) – 61% discount to fair value
2.) Petrobras Energy Participaciones SA (PZE) – 55% discount to fair value
3.) ConocoPhillips (COP) – 30% discount to fair value
4.) Repsol YPF SA (REP) – 26% discount to fair value