by James Allen
Anadarko Petroleum (NYSE:APC) is an appealing asset for investors interested in the E&P industry to follow and soon add to their portfolio. There are a number of factors indicating that Anadarko has potential for short and long-term growth in stock price throughout 2012 for the next three to five years. Anadarko's price is currently trading at a discount due to the lull industry-wide and a few mitigating circumstances in Anadarko's recent past.
In turn, there are a number of opportunities for investors to buy Anadarko at an even lower stock price in the near future. Interested investors can act now, wait for the circumstances to play out or wait for the next earnings report on the current quarter.
The financials on Anadarko's balance sheet are favorable for the most part. The current stock price is trading around $63. This price is coming off the recent 52-week low in early June 2012 of over $56. The 52-week high for the Anadarko's stock price is over $66 while the 50 day and 200 day moving averages are over $66 and $76, respectively. The market cap is over $30 billion, about $13 billion less than the enterprise value. Anadarko's beta typically ranges between one and two, typically closer to two. The PEG ratio ranges from a half up to one. All of these figures indicate that Anadarko is trending towards the lower end of its annual range while maintaining potential for rapid growth or decline as well.
Anadarko's stock price has been trending downwards throughout 2012. The price is down over 16 percent year-to-date, down 23 percent in the last 3 months and down over seven percent in the four weeks. Sales growth is down over 10 percent from the previous quarter but it has increased by five percent since the previous year. Operating margin and return on equity have been increasing for the past three quarters. Net margin has increased since 2011 but was still a loss by over nine percent for March of 2012.
Price is over 16 times earnings but still remains below the industry average. Net margin has increased to around a five percent loss but still remains below the industry average of over 11 percent. Anadarko's return on equity is slightly above the industry average of over seven percent. Anadarko's growth rates for 2012 and next year significantly exceed the industry average. Currently, both the current ratio and quick ratio are between 1.5 and two. The gross margin and institutional ownership both exceed 85 percent. There is plenty of data on paper to suggest that Anadarko is undervalued and poised for an increase in the stock price in the near future.
Anadarko was able to avoid going to trial with Noble (NYSE:NBL) and ended up settling for over $100 million in damages regarding a canceled lease for offshore drilling in the Gulf of Mexico after the BP Deepwater Horizon calamity. Again, keeping out of court helps maintain goodwill for the Anadarko brand while avoiding negative publicity. Eventually, it will benefit Anadarko to transition towards owning rigs opposed to lease for drill contracts and partnerships.
The diversified and balanced approach similar to Apache (NYSE:APA) is what makes Anadarko such an appealing and advantageous investment to add to the portfolio. Anadarko has been successful with deepwater drilling, unconventional drilling and conventional drilling in the United States and around the world as well. Three years ago natural gas accounted for over 60 percent of Anadarko's annual sales volumes; today it is nearly even at 50 percent. Anadarko focuses much of its efforts on oil plays in the North Sea and Gulf of Mexico while it utilizes natural gas plays off the western and eastern African coasts. Anadarko has interests and significant stakes in multiple projects and plays with other E&Ps around the world. Through an aggressive and balance approach Anadarko plans to increase production from 2.5 bboe presently to a production rate of 3 bboe by the end of 2014.
Within the past month, Anadarko has starting building a new natural gas plant in Texas along with announcing two promising drilling discoveries of liquid assets. Anadarko is constructing a natural processing plant to support its plans for increased drilling in the Eagle Ford Shale play throughout the rest of 2012. Anadarko expects the plant to be operational by April of 2013. The facility will begin by processing 200 million cubic feet of LNG each day, eventually increasing to 400 million cubic feet per day. This represents Anadarko's intent to increase its liquid asset portfolio as it has plans for more than 4,000 drilling sites on its 400,000 acres in shale of south Texas.
Anadarko has also discovered two new sources of assets in its joint ventures in Cote d'Ivoire and Mozambique. A significant natural gas discovery was made in Mozambique. This play is expected to yield over 10 trillion tcf in the future; Anadarko has a 36 percent working interest in this venture. Approximately 100 feet of oil was discovered after drilling made in Cote d'Ivoire. Anadarko has a 40 percent working interest in this promising play in the Ct-103 block. Anadarko is on its way to becoming one of the largest independent E&P entities in the world with its continuously aggressive and successful discoveries. Anadarko is currently awaiting an opportunity to begin drilling in the Centerra development in Colorado as well.
Anadarko has valuable assets in multiple continents around the world that make it a viable long-term player in deep-water, onshore and offshore E&P. Its holdings in Brazil and abundant portfolio create significant opportunities to generate cash through sales, leasing or increasing exploration and production. Anadarko will also see a stock price increase as the oil and gas markets begin to normalize throughout the summer. Interested investors should follow the stock price fluctuations in order to establish the best entry into this trade or investment. The stock is currently trading around $65, and I expect it to reach the $70 level by September.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.