Chevron Vs. Statoil: Is There A Clear Winner?

| About: Chevron Corporation (CVX)

"Endurance is the crowning quality, and patience all the passion of great hearts."

James Lowell

Two major integrated oil and gas companies - Chevron Corp and Statoil - are going to be examined in detail and pitted against each other in the hopes of finding a champion. Detailed data has also been provided on three other plays for investors who might be looking for other ideas. At the end of the article we will offer our opinion as to which one is better.

Reasons to be bullish on Chevron Corp (CVX):

  • A decent quarterly revenue growth rate of 13.3%.
  • A great three year total return of 101%.
  • Net income has surged from $10 billion in 2009 to roughly 27 billion in 2011.
  • Cash flow per share has jumped from $10.86 in 2009 to $19.99 in 2011, an increase of over 83%.
  • EBITA has increased from $3.06 billion in 2009 to $6.05 billion in 2011; an increase of almost 100%.
  • In 2009 sales came in at $17.1 billion and in 2011, they totaled $25.3 billion, a 47% increase.
  • It has a decent five-year dividend growth rate of 3.22%.
  • A very low payout ratio of 24% and excellent five-year average payout ratio of only 31%.
  • A good five year average ROE 21.28%.
  • A ROI of 21.68.
  • It has a good current ratio and quick ratio of 1.58 and 1.42 respectively.
  • It has consecutively increased dividends for 19 years.
  • It has a good free cash flow yield of roughly 7.07%.
  • Full year earnings for 2011 set a new milestone at $26.9 billion.
  • A natural gas liquefaction plant has been slated for construction in Australia, the Wheatstone Liquefied natural gas project. Two new natural gas discoveries were announced in the Carnarvon Basin in Australia. The gas from here could be used to supply the Wheatstone NGL plants once it's up and running. They added 1.67 billion barrels of net oil equivalent reserves in 2011. This equates to 171% of its net oil equivalent production for the year.
  • Sales for the fourth quarter were $58 billion, up from $52 billion a year ago.
  • $100K invested for 10 years would have grown to $365K.

Reasons to be bullish on Statoil (NYSE:STO):

  • It sports a massive levered free cash flow of $10.78 billion.
  • Net income has surged from $2.8 billion in 2009 to $14.02 billion in 2011, an increase of 400%.
  • Cash flow from operating activities has generally been trending up for the past three years.
  • The growth is expected to come from new projects in the 2014 to 2016 time frames that should result in a compound annual growth rate (CAGR) of 3% for the period 2012 to 2016. A second group of projects is expected to begin in the 2016 2020 time periods that should lead to CAGR of almost 4%.
  • In 2011 net operating income soared to NOK 212 billion compared to NOK 137.3 billion in 2010.
  • Statoil drilled 41 exploration wells, 22 of which were discoveries.
  • It added more than 1 billion barrels to its reserves. It achieved a reserve replacement ratio of 1.17 in 2011. The RRR for oil was 1.45.
  • It has a great total debt to equity ratio of 0.07.
  • An excellent long-term debt to equity ratio of 0.00.
  • An acceptable quick and current ratio of 1.00 and 1.16 respectively.
  • A very strong quarterly earnings growth rate of 167%.
  • A strong quarterly revenue growth rate of 22%.
  • A good ROE of 30.65%.
  • A very low payout ratio of 23%.
  • A very strong interest coverage ratio of 557.
  • EBITDA increased from $29 billion in 2009 to $47 billion in 2011.
  • Cash flow per share increased from $3.64 in 2009 to $12.70 in 2011.
  • Sales increased from $743 billion in 2009 to $116 billion in 2011.
  • Annual EPS before NRI increased from $2.36 in 2007 to $9.83 in 2011.
  • A good three-year total return of 65%.
  • It has a free cash flow yield of roughly 5.5%.
  • Management has stated that organic capital expenditures for 2012 are going to be in the neighborhood of $17 billion. This includes expenditures related to assets acquired from the Brigham acquisition.
  • It expects to complete more than 40 wells in 2012.
  • Management wants Statoil to be in the top quartile of its peer group for unit production cost.
  • Management has set a target of trying to reach equity production above 2.5MMboe in 2020.
  • $100K invested in Statoil would have grown to $432K.

Numerous key ratios will be covered in this article and investors would do well to get a grip on some of the more important ones which are dealt with below.

Long-term debt-to-equity ratio is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balance sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase, the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.

Operating cash flow is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt. The cash flow is what pays the bills.

The payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders than they are making. This situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for some time. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever. If your tolerance for risk is low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest - Annaly Vs. Dynex: Who Is The Champ?

Current Ratio is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing future earnings. Ideally the company should have a ratio of 1 or higher.

Price to free cash flow is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa. Lower ratios are generally more attractive. If a company generated $400 million in cash flow and then spent $100 million on capital expenditures, then its free cash flow is $300 million. If the share price is $100 and the free cash flow per share is $5, then the company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry. This gives you an idea of how the company you are interested in holds up to the other companies within the industry.

Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of one year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.

Price to tangible book is obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to. Additional key metrics are addressed in this article - Dividend Plays: Kimberly-Clark Our Top Pick.

Company: Chevron Corp

Levered Free Cash Flow = 13.87B

Basic Key ratios

  1. Percentage Held by Insiders = 0.16
  2. Number of Institutional Sellers 12 Weeks = 1

Growth

  1. Net Income ($mil) 12/2011 = 26895
  2. Net Income ($mil) 12/2010 = 19024
  3. Net Income ($mil) 12/2009 = 10483
  4. 12mo Net Income this Q/12mo Net Income 4Q's ago = 41.37
  5. Q Net Income this Q/ same qtr yr ago = -3.25
  1. EBITDA ($mil) 12/2011 = 60545
  2. EBITDA ($mil) 12/2010 = 45168
  3. EBITDA ($mil) 12/2009 = 30666
  4. Net Income Rpt Qtr ($mil) = 5123
  5. Anl Net Income this Yr/ Net Income last Yr = 41.37
  1. Cash Flow ($/share) 12/2011 = 19.99
  2. Cash Flow ($/share) 12/2010 = 15.91
  3. Cash Flow ($/share) 12/2009 = 10.86
  4. Div 5yr Growth 12/2011 = N/A
  1. Sales ($mil) 12/2011 = 253706
  2. Sales ($mil) 12/2010 = 204928
  3. Sales ($mil) 12/2009 = 171636
  1. Anl EPS before NRI 12/2007 = 8.63
  2. Anl EPS before NRI 12/2008 = 11.38
  3. Anl EPS before NRI 12/2009 = 4.84
  4. Anl EPS before NRI 12/2010 = 9.45
  5. Anl EPS before NRI 12/2011 = 13.44

Dividend history

  1. Dividend Yield = 3.2
  2. Div Yield 5 Yr Average 09/2011 = 3.22
  3. Annual Dividend 12/2011 = 3.09
  4. Annual Dividend 12/2010 = 2.84
  5. Forward Yield = 2.96
  6. Div 5yr Growth =8.59

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.24
  2. Payout Ratio 5 Yr Average 09/2011 = 0.31
  3. Change in Payout Ratio = -0.07

Performance

  1. Average EPS Surprise Last 4 Qtr = 4.16
  2. EPS % Change F2/F1 = 3.68
  3. Next 3-5 Yr Estimate EPS Growth rate = 7.54
  4. Std Dev 3-5 Yr Estimate EPS Growth rate = 1.35
  5. EPS Growth Q(1)/Q(-3) = -102.38
  6. 5 Yr Historical EPS Growth 09/2011 = 5.11
  7. ROE 5 Yr Average 09/2011 = 21.28
  8. Return on Investment 09/2011 = 21.1
  9. Debt/Tot Cap 5 Yr Average 09/2011 = 8.36
  10. Current Ratio 09/2011 = 1.58
  11. Current Ratio 5 Yr Average = 1.4
  12. Quick Ratio = 1.42
  13. Cash Ratio = 0.77
  14. Interest Coverage 12/2011 = N/A
  15. Total return last 3 years = 67%
  16. Total return last 5 years = 47%

Valuation

  1. Book Value Qtr ($/share) 09/2011 = 61.35
  2. Price/ Book = 1.64
  3. Price/ Cash Flow = 5.00
  4. Price/ Sales = 0.79
  5. EV/EBITDA 12 Mo = 3.41

Statoil ASA

Levered Free Cash Flow: 10.78B

Growth

  1. Net income for the past three years
  2. Net Income ($mil) 2009 = $2834
  3. Net Income ($mil) 2010 = $6242
  4. Net Income ($mil) 2011 = $14026
  1. Total cash flow from operating activities
  2. 2008 = $14.59 billion
  3. 2009 = $12.64 billion
  4. 2010 = $13.91 billion
  1. EBITDA ($mil) 12/2011 = 47416
  2. EBITDA ($mil) 12/2010 = 31365
  3. EBITDA ($mil) 12/2009 = 29024
  1. Cash Flow ($/share) 12/2011 = 12.70
  2. Cash Flow ($/share) 12/2010 = 4.61
  3. Cash Flow ($/share) 12/2009 = 3.64
  1. Sales ($mil) 12/2011 = 116612
  2. Sales ($mil) 12/2010 = 87435
  3. Sales ($mil) 12/2009 = 73967
  1. Anl EPS before NRI 12/2007 = 2.36
  2. Anl EPS before NRI 12/2008 = 2.44
  3. Anl EPS before NRI 12/2009 = 0.92
  4. Anl EPS before NRI 12/2010 = 1.98
  5. Anl EPS before NRI 12/2011 = 9.83

Performance

  1. Price to Sales = 0.71
  2. Price to Book = 1.78
  3. Price to Tangible Book = 2.66
  4. Price to Cash Flow = 2.05
  1. Quick Ratio = 1.00
  2. Current Ratio = 1.20
  3. LT Debt to Equity = 0.00
  4. Total Debt to Equity = 0.07
  5. Interest Coverage = 557
  6. Inventory Turnover = 11.74
  7. Asset Turnover = 0.85
  8. Total return last 3 years = 65%
  9. Total return last 5 years = 17%
  10. ROE = 30.65%
  11. ROE 5 year average= 27%
  12. Return on Assets = 13.01%
  13. Quarterly Earnings Growth = 167.4%

Dividend history and sustainability

  1. Dividend Yield= 3.7%
  2. Payout ratio = 23%
  3. Dividend yield 5 year average 3.4%
  4. Dividend growth rate 5 year average = -4.48
  5. Consecutive dividend increases = 1 years
  6. Dividend yield 5 year average = 3.4%
  7. Paying dividends since = 2002

Other interesting companies to consider

Company: Atwood Oceanics (ATW)

Levered Free Cash Flow = -424.00M

Basic Key ratios

  1. Percentage Held by Insiders = 0.56
  2. Market Cap ($mil) = 2927
  3. Number of Institutional Sellers 12 Weeks = 1

Growth

  1. Net Income ($mil) 12/2011 = 272
  2. Net Income ($mil) 12/2010 = 257
  3. Net Income ($mil) 12/2009 = 251
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 17.08
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 23.88
  1. EBITDA ($mil) 12/2011 = 379
  2. EBITDA ($mil) 12/2010 = 374
  3. EBITDA ($mil) 12/2009 = 319
  4. Net Income Reported Quarterlytr ($mil) = 65
  5. Annual Net Income this Yr/ Net Income last Yr = 5.71
  6. Cash Flow ($/share) 12/2011 = 4.94
  7. Cash Flow ($/share) 12/2010 = 5
  8. Cash Flow ($/share) 12/2009 = 4.22
  1. Sales ($mil) 12/2011 = 645
  2. Sales ($mil) 12/2010 = 651
  3. Sales ($mil) 12/2009 = 587
  1. Annual EPS before NRI 12/2007 = 2.19
  2. Annual EPS before NRI 12/2008 = 3.34
  3. Annual EPS before NRI 12/2009 = 3.89
  4. Annual EPS before NRI 12/2010 = 4.16
  5. Annual EPS before NRI 12/2011 = 4.15

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -7.38
  2. Next 3-5 Year Estimate EPS Growth rate = 15
  3. EPS Growth Quarterly(1)/Q(-3) = -123.46
  4. ROE 5 Year Average 06/2011 = 23.76
  5. Return on Investment 06/2011 = 13.62
  6. Debt/Total Cap 5 Year Average 06/2011 = 15.06
  1. Current Ratio 06/2011 = 3.99
  2. Current Ratio 5 Year Average = 3.76
  3. Quick Ratio = 2.53
  4. Cash Ratio = 1.95
  5. Interest Coverage Quarterly = 130.88
  1. Valuation
  1. Book Value Quarterly = 26.48
  2. Price/ Book = 1.7
  3. Price/ Cash Flow = 9.09
  4. Price/ Sales = 4.28
  5. EV/EBITDA 12 Mo = 8.87

Company: ArcelorMittal (MT)

Levered Free Cash Flow = $4.32B

Basic Key ratios

  1. Percentage Held by Insiders = 0.06
  2. Relative Strength 52 weeks = 17
  3. Dividend 5-year Growth = -12.59
  4. Cash Flow 5 -year Average = 9.31
  5. Dividend Yield 5-Year Average = 2.45

Growth

  1. Net Income ($mil) 12/2011 = 2259
  2. Net Income ($mil) 12/2010 = 3005
  3. Net Income ($mil) 12/2009 = 75
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -23.37
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -28.21
  1. EBITDA ($mil) 12/2011 = 9294
  2. EBITDA ($mil) 12/2010 = 7829
  3. EBITDA ($mil) 12/2009 = 1020
  4. Net Income Reported Quarterly ($mil) = -1000
  5. Annual Net Income this Yr/ Net Income last Yr = -24.83
  6. Cash Flow ($/share) 12/2011 = 5.04
  7. Cash Flow ($/share) 12/2010 = 4.64
  8. Cash Flow ($/share) 12/2009 = 4.88
  1. Sales ($mil) 12/2011 = 93973
  2. Sales ($mil) 12/2010 = 78025
  3. Sales ($mil) 12/2009 = 65110
  1. Annual EPS before NRI 12/2009 = 1.5
  2. Annual EPS before NRI 12/2010 = 1.68
  3. Annual EPS before NRI 12/2011 = 1.8

Dividend history

  1. Dividend Yield = 3.80
  2. Dividend Yield 5 Year Average 12/2011 = 2.45
  3. Dividend Yield 5 Year Average 09/2011 = 2.45
  4. Annual Dividend 12/2011 = 0.64
  5. Annual Dividend 12/2010 = 0.64
  6. Forward Yield = 3.79
  7. Dividend 5 year Growth 12/2011 = -12.59

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.36
  2. Payout Ratio 5 Year Average 12/2011 = 0.25
  3. Payout Ratio 5 Year Average 09/2011 = 0.25
  4. Payout Ratio 5 Year Average 06/2011 = 0.24
  5. Change in Payout Ratio = 0.11

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -54.53
  2. Next 3-5 Year Estimate EPS Growth rate = 21.29
  3. EPS Growth Quarterly(1)/Q(-3) = 152.5
  4. ROE 5 Year Average 12/2011 = 11.19
  5. Return on Investment 06/2011 = 3.66
  6. Debt/Total Cap 5 Year Average 12/2011 = 27.51
  1. Current Ratio 06/2011 = 1.5
  2. Current Ratio 5 Year Average = 1.39
  3. Quick Ratio = 0.58
  4. Cash Ratio = 0.31
  5. Interest Coverage Quarterly = 1.90

Valuation

  1. Book Value Quarterly = 38.75
  2. Price/ Book = 0.43
  3. Price/ Cash Flow = 3.34
  4. Price/ Sales = 0.28
  5. EV/EBITDA 12 Mo = 4.95

Company: ABB Ltd (ABB)

Levered Free Cash Flow = $1.56B

Basic Key ratios

  1. Relative Strength 52 weeks = 39
  2. Dividend 5-year Growth = 39.46
  3. Cash Flow 5 -year Average = 1.49
  4. Dividend Yield 5-Year Average = 1.15

Growth

  1. Net Income ($mil) 12/2011 = 3168
  2. Net Income ($mil) 12/2010 = 2561
  3. Net Income ($mil) 12/2009 = 2901
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 23.7
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 18.57
  1. EBITDA ($mil) 12/2011 = 5752
  2. EBITDA ($mil) 12/2010 = 4615
  3. EBITDA ($mil) 12/2009 = 4902
  4. Net Income Reported Quarterlytr ($mil) = 830
  5. Annual Net Income this Yr/ Net Income last Yr = 23.7
  6. Cash Flow ($/share) 12/2011 = 1.88
  7. Cash Flow ($/share) 12/2010 = 1.45
  8. Cash Flow ($/share) 12/2009 = 1.52
  1. Sales ($mil) 12/2011 = 37990
  2. Sales ($mil) 12/2010 = 31589
  3. Sales ($mil) 12/2009 = 31795
  1. Annual EPS before NRI 12/2007 = 1.38
  2. Annual EPS before NRI 12/2008 = 1.37
  3. Annual EPS before NRI 12/2009 = 1.26
  4. Annual EPS before NRI 12/2010 = 1.15
  5. Annual EPS before NRI 12/2011 = 1.46

Dividend history

  1. Dividend Yield = 3.50
  2. Dividend Yield 5 Year Average 12/2011 = 1.15
  3. Dividend Yield 5 Year Average 09/2011 = 1.15
  4. Annual Dividend 12/2011 = 0.63
  5. Forward Yield = 6.91
  6. Dividend 5 year Growth = 45%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.44
  2. Payout Ratio 5 Year Average 12/2011 = 0.18
  3. Payout Ratio 5 Year Average 09/2011 = 0.18
  4. Payout Ratio 5 Year Average 06/2011 = 0.18
  5. Change in Payout Ratio = 0.27

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -23.07
  2. Next 3-5 Year Estimate EPS Growth rate = 11.6
  3. EPS Growth Quarterly(1)/Q(-3) = -137.93
  4. ROE 5 Year Average 12/2011 = 24.68
  5. Return on Investment 06/2011 = 17.27
  6. Debt/Total Cap 5 Year Average 12/2011 = 15.03
  1. Current Ratio 06/2011 = 1.44
  2. Current Ratio 5 Year Average = 1.56
  3. Quick Ratio = 1.09
  4. Cash Ratio = 0.44
  5. Interest Coverage Quarterly = 32.8

Valuation

  1. Book Value Quarterly = 7.08
  2. Price/ Book = 2.72
  3. Price/ Cash Flow = 10.22
  4. Price/ Sales = 1.17
  5. EV/EBITDA 12 Mo = 7.3

Conclusion

Let's look at the two champions.

First of all, let's start by stating that both companies are good long-term plays and while we will offer an opinion on which one is potentially a better play that does not render the opinion of others who might beg to differ. In this world, we are all free to opine. What is good for the goose is not necessarily good for the gander.

Statoil leads in the following parameters

  • 3.7% Vs 3.2 for Chevron.
  • Dividend yield 5 year average 3.4 Vs 3.22.
  • Quarterly Earnings growth rate of 167% Vs -3.2% for Chevron.
  • Quarterly revenue growth rate of 21% Vs 13% for Chevron.
  • Five year sales growth rate of 6.43% VS 2.09% for Chevron.
  • ROE 5 year average of 27% Vs 21% for Chevron.
  • $100K invested for 10 years grew to $432K Vs $365K for Chevron.
  • A higher beta of 1.40 Vs 0.86 for Chevron, which makes Statoil a better candidate for covered writes.
  • ROI (return on investment) of 25.5% Vs 21% for Chevron.

Chevron leads in the following parameters

  • Five year dividend growth of 8.59% Vs -4.48% for Statoil.
  • Quick and current ratio of 1.42 and 1.58 respectively Vs 1.00 and 1.2 respectively for Statoil
  • EPS projected growth rate over the next 3-5 years of 7.54% Vs 4% for Statoil.
  • 5 year total return of 47% Vs 17% for Statoil.
  • A free cash flow yield of 7.07% Vs 5.5% for Statoil.

This is another tough one and Statoil just squeaks by Chevron to take the title. Having a stake in both companies would solve issue of having to decide which one is better.

Regardless of the choice, long-term investors would do well to wait for a strong pullback before committing large sums of money to this market.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: EPS, Price, EPS surprise charts obtained from zacks.com. A large portion of the historical data used in this article was obtained from zacks.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com.