What follows is a list of energy companies that are interesting to compare in light of their brand images. While Chesapeake (CHK) currently faces egregious media heckling over its Billionaire CEO putting his money and leverage where his mouth is, Exxon Mobil (XOM) is still largely viewed as the most sustainable oil & gas major. ConocoPhillips (COP), on the other hand, has a meaningful amount of value in growth. In this article, I review these individual companies.
Chesapeake trades at just a respective 8.3x and 6.8x past and forward earnings. Perhaps most strikingly, at the current growth rate, two years of operating cash flow will exceed market value! Chesapeake is led by top management despite what the market would have you believe. CEO Aubrey McClendon defied the odds and substantially grew his company into the second leading natural gas producer. He is often blamed for doing what he does best: risk taking and aggressive financing.
McClendon has stated in the past how his view on acquisitions is to pay a meaningful premium to targets in order to speed up expansion. This has led to efficient increases in scale and well positions the company to outperform in a full recovery. As all of the negativity rightfully dissipates, the multiples will elevate back to peer levels and value will substantially appreciate concurrent with double-digit growth.
ConocoPhillips similarly is an attractive value play. It trades at a respective 7.8x and 8x past and forward earnings while likely offering a dividend yield of around 4.5%. This strong brand has recently split into an upstream and downstream business. The latter is called Phillips 66 (PSX). This spin-off will better enable investors to allocate risk and thus allow for a fairer valuation on individual assets.
From an income and value perspective, ConocoPhillips offers attractive risk/reward. It is roughly as volatile as the broader market, but growth is well supported by top management.
Exxon currently trades at a respective 10.4x and 9.7x past and forward earnings with a dividend yield of 2.6%. The stock is more than 50% less volatile than the broader market while growth is consistent. At the recent first quarter earnings call, management revealed that it missed consensus estimates, but the stock nevertheless closed 1% higher than its intraday low. Depressed domestic natural gas prices resulted in a $300M net drag on earnings, but I am optimistic about the secular trends in this energy resource.
What makes Exxon so attractive to many investors, is that it is well diversified. The firm holds records in 23 of the world's 27 longest-reach wells. With the management exploring the Black Sea, the potential for revenues to be catalyzed are realistic. I recommend Exxon as a safe way to gain exposure in energy.
Disclaimer: We seek IR business from all of the firms in our coverage, but research covered in this note is independent and for prospective clients. The distributor of this research report, Gould Partners, manages Takeover Analyst and is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.