The Outlook Brightens For Total

Jul.27.12 | About: TOTAL S.A. (TOT)

Unlike oil majors Exxon Mobil (XOM), Chevron (CVX) and Royal Dutch Shell (NYSE:RDS.A), Total (TOT) just reported earnings that beat expectations and the stock is up some 5% in early trading today (See Chart). Total has been a core part of my portfolio for a few months now. Its combination of a high dividend yield, low valuations and improving outlook make it a compelling buy for income and value investors.

Click to enlarge
(Click to enlarge)

Key highlights from earnings report:

  • European refining margins more than doubled to $38.20 a metric ton in the second quarter, up from $16.30 a ton in the same period a year ago, and $20.90 a ton in the first quarter of this year.
  • The company raised its quarterly dividend for the first time since 2008, up 3.5% to 0.59 euros per share.
  • The company's CFO also said mgmt prefers dividend increases versus stock repurchases (refreshing).
  • Total said it remained confident about the second half of the year.

Four additional reasons Total is a solid pick for value and income investors at $46 a share:

  1. The stock is selling at the bottom of its five year valuation range based on P/E, P/B, P/CF and P/S.
  2. With the payout increase, Total now yields close to 6% and the company seems committed to raise payouts as warranted in the future.
  3. The stock is cheap especially for a high yielder. TOT is selling for less than 7 times forward earnings and just over 4 times operating cash flow.
  4. Analysts have a median price target of $58 on the shares. S&P has a "Buy" rating and a $61 price target on the stock.

Disclosure: I am long CVX, TOT.