In this article I take a look at Exxon Mobil (XOM), ConocoPhillips (COP) and BP (BP) - three energy companies that may offer investors upside potential that outweighs the risks. We'll use the management effectiveness ratios, book value-share, price-sales and price-book value to evaluate Exxon and ConocoPhillips.
Additionally, macro-economic indicators are provided at the end of the article. As part of an investment analysis, analysts should consider both the company fundamentals and the macro-economic landscape. The macro-economic picture in the U.S. is deteriorating. In Europe, the economy is currently contracting.
Rating System
Buy - Be long
Neutral - No position
Sell - Be short
The ratings, research and analysis in this article should be considered as a starting point for further research.
Exxon - Buy
The financial position of Exxon is improving; book value-share and revenue-share are increasing. The share price is declining, and the enterprise is undervalued on a relative and absolute basis. Additionally, the management effectiveness ratios suggest management is effective, relative to the industry.
Exxon is liquid, as current assets are roughly equal to current liabilities. Revenue increased 8.9% in the first quarter of 2012, compared to the year-ago quarter. Gains in revenue are mostly attributed to an increase in sales and other operating revenue.
Exxon's earnings are high quality, and cash from operations was enough to cover any cash usage in investing and financing activities in the first quarter of 2012. However, the macro-economic risks from potential fiscal consolidation in the U.S. and European Union could cause valuations to decline further.
Some investors may want to protect long positions by buying put or selling call options.
Company v. Industry (TTM)
Return on Assets : 12.36 v. 5.67
Return on Investment : 16.5 v. 6.88
Return on Equity : 25.84 v. 9.45
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Book value-share is increasing; the increase in book value-share is bullish.
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The share price is increasing; however, recently the share price has been rising off a minor bottom.
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Price-sales is declining as the share price is rising; the enterprise is getting cheaper. Additionally, revenue-share is currently increasing.
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Price-book value is off of its recent high; however, it is still above the 2011 low. Book value-share increased as the share price remained relatively flat.
ConocoPhillips - Buy
The financial position of Conoco Phillips is improving as revenue-share increases. The share price is declining, and the enterprise is undervalued on a relative and absolute basis. Additionally, the management effectiveness ratios suggest management is effective, relative to the industry.
Conoco is liquid as current assets are roughly equal to current liabilities. Revenue increased less than 1% in the first quarter of 2012, compared to the year-ago quarter. Conoco's first quarter 2011 earnings are high quality; however, cash from operations wasn't enough to cover cash usage in investing and financing activities in the first quarter of 2012. That said, the macro-economic risks from potential fiscal consolidation in the U.S. and European Union could cause valuations to decline further. Some investors may want to protect long positions by buying put or selling call options.
Company v. Industry
Return on Assets : 7.70 v. 0.43
Return on Investment : 9.71 v. 0.78
Return on Equity : 18.09 v. 1.42
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ConocoPhillips' revenue-share is increasing; the increase is revenue-share is bullish.
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ConocoPhillips' share price is declining; although, recently the share price has been rising off a minor low.
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ConocoPhillips has gotten cheaper over the last year on a price-sales basis.
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Price-operating cash flow is declining as price declines, and operating cash flow is increasing.
BP -- Buy
The financial position of BP is improving as book value-share increases. The share price is declining, and the enterprise is undervalued on a relative (recent history) basis. Additionally, the management effectiveness ratios suggest management is effective, relative to the industry.
BP is liquid as current assets are 23% greater than current liabilities. Revenue increased 9.3% in the first quarter of 2012, compared to the year-ago quarter. BP's first quarter 2011 earnings aren't high quality; further, cash from operations wasn't enough to cover cash usage in investing activities in the first quarter of 2012. That said, the macro-economic risks from potential fiscal consolidation in the U.S. and European Union could cause valuations to decline further. Some investors may want to protect long positions by buying put or selling call options.
Company v. Industry
Return on Assets: 8.39 v. 5.46
Return on Investment: 11.90 v. 6.67
Return on Equity: 22.11 v. 9.16
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Book value-share is increasing; the increase is considered bullish by financial analysts.
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The common equity share price is trading near a previous support zone.
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Price-sales is declining as the common equity share price declines and sales-shares increases.
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Price-book value is declining as the common equity share price declines and book value-share increases.
Macro Environment
ISM Non-manufacturing PMI is declining; the decline in non-manufacturing PMI is considered bearish. ISM non-manufacturing PMI should stabilize in the coming months. (Click to enlarge)
The pace of job growth has slowed in recent months and may stabilize at low levels. (Click to enlarge)
CB consumer confidence is increasing and may decline in the coming months. The Expectation Index and the Present Situation Index both declined, according to the latest report. (Click to enlarge)
European Union services PMI is declining and should increase in the coming months. (Click to enlarge)
European Union manufacturing PMI is declining and should increase in the coming months. A silver lining from the current release of the report is that the pace of decline in Italian manufacturing is slowing. Additionally, the depth of the contraction in manufacturing has yet to reach the depth of the contraction from the financial crisis in 2009.
Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial adviser. Christopher Grosvenor does not know your financial situation and ability to bare risk and thus his opinions may not be suitable for all investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
