Analyzing third quarter results released October 29, we keep estimated Net Present Value (NPV) at US$48 a share for buy-recommended Imperial Oil (IMO). On that basis, IMO stock offers unlevered appreciation potential of 27% to a McDep Ratio of 1.0 where stock price would equal NPV.
Latest results exceeded our expectations from three months ago in upstream profits mainly due to oil price - particularly for heavy oil, which shows little of the customary discount to the lighter benchmark. Three major oil sands properties, Syncrude, Kearl and Cold Lake account for most of NPV in our valuation. IMO reports that Cold Lake passed a billion barrels of cumulative production in the past quarter, the only in situ oil sands project to reach that rare distinction.
Pointing to possible further oil gains, futures prices for the next six years trade above the 40-week average. IMO stock has dropped to its rising 200-day average, a point from which we expect it to advance considering the trend for every other stock in our coverage.
Originally published on November 2, 2009.