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Introduction

There are too many articles on Seeking Alpha concerning the top oil companies. These companies have a very similar story to tell. However, the important question is which one is the best bargain among the oil stocks? There is limited analysis comparing the oil majors on similar metrics, even though many analysts are making separate arguments built along the same lines.

Recently, we compared Exxon Mobil Corp. (NYSE:XOM) to its industry competitors, Chevron (NYSE:CVX) and Conoco Philips (NYSE:COP), and tracked the latest investment status of each. Then, we tracked BP (NYSE:BP) with its direct competitor -- Royal Dutch Shell (NYSE:RDS.A). We compared Apache Corporation (NYSE:APA), Anadarko Petroleum (NYSE:APC), Conoco Philips, Marathon Oil Corporation (NYSE:MRO) and Occidental Petroleum (NYSE:OXY). Today, we are going to compare Exxon Mobil , TOTAL (NYSE:TOT) and Petrobras (NYSE:PBR).

Recent Updates

As oil and gas reserves deplete with time, the majority of these reserves are now controlled by national entities. However, there is still a large share of oil that the private sector explores, produces and refines. This model is followed all across the world and in this article there will be a comparison between an American oil giant, a French oil revolutionary and a Brazilian state controlled oil champion. I am talking about Exxon Mobil, TOTAL and Petrobras. These three super major oil companies are vastly different in their reliance upon profits and also for their exploration activities. Furthermore, the three also have three different attractions for investors looking to buy into integrated oil and gas stocks. Total offers a whopper of a dividend, Petrobras is state-owned and enjoys all the benefits attached to that, and Exxon Mobil is the world's largest traded stock by market capitalization. In this article, I will be comparing the three on the basis of the most value being offered to shareholders, keeping the varying sizes aside.

Tracking Financials

There are many ways to estimate the fair stock value of a company. For this purpose, we applied the discounted-earnings-plus-equity model developed by EFS Investment analysts to these competitors.

Indicator

Total

Petroleo Brasileiro Petrobras

Exxon Mobil

Price/Earnings ttm

10.32

11.17

9.19

Price/Book

1.2

0.4

2.4

Net Income Growth (3 Yr Avg.)

8.2

-10.7

15.8

Revenue Growth (3 Yr Avg.)

17.6

16.2

32.5

Dividend Yield, %

5.10%

0.60%

2.80%

Debt/Equity

0.3

0.5

-

Return on Equity

11.8

3.6

27.7

Current Price

$50.36

$18.88

$90.15

Estimated Fair Value Range

$68-$110

$24-$49

$143-$180

Stock Valuation

Undervalued

Undervalued

Undervalued

Upside Potential to Reach Fair Value

34%

26%

58%

Data taken from Morningstar and Financial Visualizations on May 13, 2013

The calculations based on this model allow us to suggest the following: currently, all stocks are undervalued. In addition, EFS's fair stock price valuation indicates that XOM is trading at the highest discount.

In today's age, Exxon Mobil has become a renowned stock, which consistently provides a stellar return on equity. Its ROE metrics are head and shoulders above the competition. Total at least has its ROE in double figures, while Petrobras is exhibiting the primary drawback of state owned companies - the drop in efficiency and thus lower than expected results. Total and Exxon Mobil also have managed to get their debt figures under control, with Total reducing its total debt by a significant amount last year. Over the past three years, Exxon Mobil's growth and the grand nature of its operations have allowed it to enjoy a high growth rate. While Total and Petrobras have done well in this metric, they are easily outperformed again by Exxon Mobil. Now, the defining measurement among the three is their net income growth over the last three years. All three of these companies have been enjoying a healthy revenue growth over the past 3 three years. However, profit is not just revenue alone. There is the added factor of costs to be considered. Petrobras struggles really badly in this regard. Its net income growth is in the negatives. Whether it's due to the inefficient bureaucratic structure of the company or poor control over operational costs, the drawback is costing the Brazilian giant in a massive way. Total and Exxon Mobil, on the other hand, are neck in neck in this regard. The amount of net income they derive from revenue is almost an equivalent 50% for the French and American companies.

Stock Performance of this Triple

The graphs below illustrate the share price performances of the three stocks over 1-year and 5-year time periods. I have done this comparison to make this analysis relevant for long and short term readers. For the 5-year period, it must be said that all three companies have not shown good results. Only XOM has had a 1% price appreciation, while the other two are far down into the negatives, with PBR continuing its horrendous run throughout the years. The tipping point was 2010, when the global economy was just coming out of recession. Exxon Mobil was least affected by the slowdown in the global economy. In the 1-year picture, Total offers strong competition to Exxon Mobil as its price line stays close to that of the American giant. On the back of recent quarterly news, the stock price has appreciated to a 12% high from one year ago.


(Click to enlarge)

When one talks about dividend amounts, XOM provides a $2.18 annual dividend, while TOT provides $1.93, and PBR offers a meager $0.12. XOM's payout ratio is 22.5%, showing that the company has strong potential to further increase the dividend. TOT's payout ratio is 40.9% and PBR's is a dismal 7.1%. I have ignored the yields because of I already mentioned that this is a lopsided comparison. The purpose of this comparison is to find a company which provides the most shareholder value.

Make or Break for Investors

Europe's third largest oil and gas company is Total, which deals in chemicals as well as oil and gas. The company is awaiting the opening of its Angolan liquefied natural gas (LNG) project and the Kashagan field in Kazakhstan to meet its production growth target of 2 to 3% in 2013. Even though the company's year-to-year net profit fell by 7%, it looks ready to expand its operations in Africa, Europe and Asia.

Petrobras is the sixth largest oil company by market value. Its first quarter profit fell by 17%. Petrobras is investing $236.7 billion over five years to build refineries, develop deepwater fields and ramp up output in deepwater fields including Lula. Petrobras produces more oil than any other company in waters deeper than 1,000 feet (305 meters) and as a result is building dozens of platforms and drill ships to expand output. At the same time, however, it is being investigated by the local Securities and Exchange Commission for supposed irregularities with relation to minority shareholders.

Exxon Mobil is currently engrossed in mitigating an oil spill that dumped 200,000 gallons from the Pegasus pipeline into Mayflower, Arkansas. Meanwhile, the company has sufficient proven oil and gas on its books to produce at current levels for 16 years. However, its production has been consistently short of analysts' estimates for a few years now. Last year, its oil and gas production fell by 5.9%. For 2011, production rose by only 1% against a projection of 3 to 4%. In the last quarter, XOM reported a flat profit with only its strong chemical business making up for the losses from oil exploration and production.

Morningstar provides the following ratings for these three companies - XOM: 1/7 buy, 1/7 outperform, 5/7 hold. TOT: 5/7 buy, 1/7 outperform, 1/7 hold. PBR: 1/2 buy, 1/2 hold.

Bottom Line

Total has been unable to keep up with Exxon Mobil since 2010, but since last year Total has been ramping up its efforts to rejoin the big boys of the oil and gas sector. The company already has a strong production base in Africa, and for the next three years is looking to capitalize in the Middle East as well by building a $1.5 billion condensate refinery in Qatar. The growth prospects of the French company are ten-fold, as it becomes less and less reliant on the faltering European economy. Total is undeniably a buy for the long term, while Petrobras' dismal performance is a clear indicator of the company's struggles. While Exxon Mobil has undeniable potential, when compared to Total, I believe the French company holds the upper hand.

Source: Juicy Oil Bargains - Part 2: Cross-Atlantic Battle For The Most Rewarding Oil Stock