Anadarko Petroleum Corporation (APC) and Phillips 66 (PSX) are two energy stocks, with higher margins and stronger ROEs compared with their peers, gaining with fundamental improvements. Both stocks will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.
Anadarko Petroleum Corporation
APC was up 3.75% and closed at $86.40 on March 20, 2013. APC had been trading in the range of $56.42-$87.50 in the past 52 weeks. APC has a market cap of $43.25B with a beta of 1.53.
On March 20, 2013, UBS reiterated an overweight rating and increased its target price from $102 to $105 for APC. On March 18, 2013, Barclays also reiterated an outperform rating and increased the target price from $101 to $102 for APC. Analysts currently have a mean target price of $104.13 and a median target price of $100.00 for APC, suggesting 15.74%-20.52% upside potential. Analysts, on average, are estimating an EPS of $0.89 with revenue of $3.47B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $4.02 with revenue of $15.05B, which is 12.20% higher than 2012.
On March 21, 2013, APC announced a U.S. Gulf of Mexico oil discovery that may produce more than half a billion barrels of crude. As reported by Bloomberg, the well, drilled to almost 6 miles (9.6 kilometers) beneath the seafloor in water 5,800 feet deep, encountered oil deposits more than 1,000 feet thick. John Malone, an analyst for Global Hunter Securities LLC believes the field may produce 700 million barrels of oil, more than twice a previous estimate. The discovery adds $3 a share to Anadarko's value as indicated by Brian Lively, an analyst for Tudor, Pickering, Holt & Co.
There are a few positive factors for APC:
- Higher revenue growth (3-year average) of 14.2 (vs. the industry average of -2.8)
- Higher operating margin of 27.8% and net margin of 17.8% (vs. the industry averages of 24.9% and 13.1%)
- Stronger ROE of 12.4 (vs. the average of 8.7)
Technically, the MACD (12, 26, 9) indicator is showing a bullish trend. The momentum indicator, RSI (14), is picking up and showing a strong buying momentum at 63.51. APC is currently trading above its 200-day MA of $72.53 and 50-day MA of $81.19. The next resistance is $88.20, the R2 pivot point, as seen from the chart below.
How to Invest
The company is expected to increase reserves and production over the next few years supported with its low-cost base. With expected 11.17% long-term annual EPS growth rate (for the next 5 years), more upside is expected for APC in the long-term. For bullish investors, a credit put option spread of May 18, 2013, $77.50/$80 put can be reviewed. Investors can also review the following ETFs to gain exposure to APC:
- Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO), 8.16% weighting
- Energy Select Sector SPDR (XLE), 2.99% weighting
- Dow Jones U.S. Energy Sector Fund (IYE), 2.46% weighting
PSX was up 3.26% and closed at $67.54 on March 20, 2013. PSX had been trading in the range of $28.75-$68.44 in the past 52 weeks. PSX has a market cap of $41.98B.
On February 11, 2013, Deutsche Bank reiterated a hold rating and increased the target price from $60 to $69 for PSX. Analysts currently have a mean target price of $70.08 and a median target price of $69.00 for PSX, suggesting 2.16%-3.76% upside potential. Analysts, on average, are estimating an EPS of $1.65 with revenue of $40.16B for the current quarter ending in March, 2013. For 2013, analysts are predicting an EPS of $7.64 with revenue of $177.61B, which is 1% lower than 2012.
As reported by Bloomberg, Phillips 66 will increase deliveries of cheaper crudes to its refineries nationwide by as much as 130,000 barrels a day under three transportation deals and a new investment. As quoted from Greg Garland, PSX's chairman and CEO,
We are aggressively pursuing increased access to advantaged crudes in North America by partnering with leading third-party transportation providers and better leveraging our own system capabilities. Increasing our utilization of those advantaged crudes should allow us to capture significant value in our refining and marketing businesses.
There are a few positive factors for PSX:
- Higher revenue growth (3-year average) of 17.1 (vs. the industry average of 10.9)
- Higher operating margin of 3.6% and net margin of 2.2% (vs. the industry averages of 2.2% and 1.4%)
- Stronger ROE of 18.7 (vs. the average of 12.6)
- Lower P/E, P/B, and P/S of 10.1, 2.0, and 0.2 (vs. the industry averages of 11.8, 2.2, and 0.3)
- Lower Forward P/E of 8.7 (vs. the S&P 500's average of 13.9)
- PSX generates a strong operating cash flow of $4.30B with a levered free cash flow of $1.63B
- PSX offers an annual dividend yield of 1.85%
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, but the MACD difference continues to converge. RSI (14) is picking up and indicating a strong buying momentum at 66.07. PSX is currently trading above its 50-day MA of $60.99 and 200-day MA of $47.54, as seen from the chart below.
How to Invest
By divesting underperforming assets and initiating enhancement plans, as well as increasing asset utilization, PSX remains a great long-term holding with improving fundamentals. For bullish investors, a credit put option spread of May 18, 2013 $57.5/$62.5 can be reviewed. Investors can also review the following ETFs to gain exposure to PSX:
- Dow Jones U.S. Oil & Gas Exploration & Production Index Fund , 7.59% weighting
- Dow Jones U.S. Energy Sector Fund , 2.28%
Note: All prices are quoted from the closing of March 20, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.