Over the last few years major oil companies have become the target of environmentalists, politicians and consumer advocates. The biggest reason is from consistently high prices charged for crude oil and gasoline. For investors these stocks appear to be enticing because of the potential profit margins. However, several major players have recently announced challenges associated with the refining portion of the business. In this article, I analyze Anadarko Petroleum (APC), Conoco Phillips (COP), Chevron Corporation (CVX), Petro China (PTR) and BP PLC (BP) on a relative value and earnings basis. My analysis and ideas should be used as a starting point for all future research.
Anadarko Petroleum trades at a forward price earnings ratio of 23.18. The balance sheet includes $12.98 billion in revenues, $3.29 billion in cash and $13.94 billion in debt. The earnings have been volatile over the last three quarters going from $.29 to $1.14. Then declining in the third quarter of 2011 to $.66 (see below).
Anadarko Petroleum Earnings per Share
Despite these numbers, the price of the stock is above the 200 day moving average of $75.81. The bullish move in shares follows a test of support at the 200 day moving average earlier in the month. The divergence in these numbers is from the company focusing on exploration. These activities are taking place off of the coast of West Africa with major discoveries in areas such as: Mozambique and Ghana. The momentum is showing how investors are bidding up the stock. The hope is that the new discoveries will increase the firm's earnings dramatically. As a result, investors should watch the next quarterly report. If the earnings per share is above $1.14 and there are positive comments about operations in West Africa is when the price could test $85.00.
Conoco Phillips trades at a forward price earnings ratio of 8.55. The balance sheet includes revenues of $266.57 billion, $6.03 billion in cash and debt of 27.64 billion. In the past year the earnings for the company have been steadily increasing from $1.32 to $2.52 (see below).
Conoco Phillips Earnings per Share
This has caused the stock to trade above the 200 day moving average of $70.15 (which is bullish). The volume has been fairly low and the stock is in a trading range from $66to $74. These factors are showing how Conoco Phillips is a good buy. This is based on the strong earnings, revenues and low valuation in comparison with the debt. The recent trading range is a sign that investors are waiting to see if the company can beat the previous quarterly number. As a result, investors need to be watchful of the earnings and how the price of the stock is reacting.
Chevron Corporation trades at a forward price earnings ratio of 8.25. The balance sheet includes revenues of $229.60 billion, $20.34 billion in cash and $9.74 billion in debt. During the last 52 weeks the earnings have been increasing ranging from $2.44 to $3.85. However, in the last quarter there was a decline to $3.67 (see below).
Chevron Corporation Earnings per Share
The worse than expected earnings (in the last quarter) caused the stock to decline to support levels around $95. Since this happened shares have reversed and broken through the 200 day moving average of $102 (which is a bullish sign) on light volume. The aforementioned is showing how investors want to see more clarity in the next earnings report. As a result, it is advisable to watch the earnings per share in comparison with $3.85. If these figures are beyond these what analysts are projecting is when the price of the stock could test $88.00. It is at this point when any kind of upward momentum will be backed by strong fundamentals and earnings.
Petro China trades at a forward price earnings ratio of 9.82. The balance sheet includes $300.92 billion in revenues, $21.05 billion in cash and $49.78 billion in debt. In the last year earnings have been rising from $3.47 to $3.53. However, the slowdown that is occurring in China raised concerns about profit margins. During this time is when the stock tested support levels at $112.50. Then, a double bottom pattern was established and shares climbed to the current price. Moreover, the company is investing aggressively in overseas projects and venturing into other areas (i.e. natural gas). These facts are showing how Petro China is a good buy. This is from the low valuations, consistent earnings, momentum and steps to diversify the firm. In the future this means that the price could test $165.00.
BP yields a forward price earnings ratio of 6.75. The balance sheet includes revenues of $362.18 billion, $18.28 billion in cash and debt of $45.28 billion. In the last 52 weeks earnings have been volatile going from $1.39 to $1.75 (see below).
BP PLC Earnings per Share
This has caused the price of the stock to fall to $33.62 in October. Since then shares have went through the 200 day moving average of $42.35 (which is a bullish sign). However, the volume has been low (indicating a lack of conviction among buyers). As a result, BP could be overbought and investors should watch the earnings. If these numbers can come in above $1.75 is when the stock will climb higher. Until this happens, the company will have good fundamentals with no catalyst to drive the price higher (earnings). Once there is an improvement in these numbers is when volume and momentum will increase. It is the point that investors can realize above average returns in the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.