STO's Growth Will Blow Out Earnings

The new high price of oil and gas has pushed the price of many of the oil and gas producers higher. Many of these are owned by their governments, but in some cases we see some that have United States ADRs. These ADRs have been quite profitable recently, and I believe they still are. Even if the current prices to go down, which I don't think they will in the next three months, they will still be well positioned going forward as they have huge production increases on line to pick up the slack is oil goes lower. Companies like PBR are riding high even though their large find won't come on line for years.

StatoilHydro ASA (STO) seems to be well positioned and a value with a PE of 14. This earnings period has posted one win after another with respect to this sector. STO is well diversified and has a very large presence with respect to oil drilling. Earnings estimates have this company growing 67% year over year. Full year growth estimates are at 40%. Last quarter, this company missed earnings estimates by 22%, but the future looks better. Remember, there is only one analyst covering the stock quarterly, so there can be fluctuations both up and down.

STO looks to be increasing production to 2 million barrels by 2012. The stock, even as it has climbed as of late, had priced in the miss in production for 2007, so a much more reasonable expectation this quarter is expected. Also, there are tax synergies that should start to be realized this quarter as the oil and gas company was taken over by Norsk Hydro last year.

Looking at the numbers, most of the increase in earnings is attributed to the merging of oil and gas assets and does not truly show the synergies created through cost savings and growth. I believe earnings will come in closer to a dollar ten per share based on this and tax savings. This stock put a bottom in on January 29th on huge volume. It is now in breakout mode and should hit 43 in the next few months. I believe with earnings growth built by the increase of oil and gas pricing along with growth in the business warrants a much higher multiple. The current trend and double top breakout on April 7th show that the stock should move towards $59.

Comments

[Yazlf:]

www.statoilhydro.com/e...

The above link is the list of the 36 analysts that have registered with StatoilHydro. About 20 of them have US phone numbers. This notion that STO is some undiscovered company followed by one analyst is nonsense.

2008 May 13 08:57 AM

[Yazlf:]

And Norsk Hydro didn't take over the oil and gas operations. It's the other way around. Is your editor asleep?

2008 May 13 11:04 AM

[Yazlf:]

You've got to take technical analysis of the ADR chart with a grain of salt since the dollar has weakened so much over the past 5 years. You really need to do the analysis on the Oslo shares, STL.OL, where the volume is much higher and the confounding effect of the dollar is taken away. STL.OL has not broken through its nominal high of ~208 set back in May 2006. If you dividend-adjust the numbers, however, it is just barely making a new high just before the dividend record date. The state has increased its holdings this spring which has helped lift the shares. That state buying looks done for now. We'll see what happens after the stock goes ex-dividend. In 2006 it got clobbered.

2008 May 13 11:14 AM

[legmaker:]

Sorry about the mistake Yaz, but with respect to my analyst comment, on yahoo finance there was only one listed giving first quarter estimates. I will be more clear in the future as I know there are many more giving buy and other recommendations on the stock. Thank you for taking time to clarify this article and I look forward to hearing from you in the future.

2008 May 13 11:25 AM

[bearfund:]

I like STO; it's a great long-term investment. The Norwegians are competent and diligent and STO in particular has excellent deep water and Arctic expertise, which I expect will be in high demand in decades ahead. Earnings surpassed expectations this quarter but the stock fell. Forget about the dollar; in the long run it's only going down. STO is a bit pricey right now in dollar terms but on the (inevitable) dip, I'll be a buyer again. The dividend is great, the company is solid, and the future looks good. This is a buy the dips and hold forever company. If you want to trade it, go ahead, but I won't bother. I'd buy the whole company if I could.

Disclosure: Long STO.

2008 May 14 12:59 AM

[legmaker:]

Bearfund, you are right on the money. I believe there is alot of money to be made in this space and PBR does seem to get more hype. Even as it is a bit pricy, it is tough to find a solid company like this that is still adding production. Thanks for your comment.

2008 May 14 09:15 AM

[Yael Pipano:]

STO has great potential. In the Norwegian sector, Statoil is set to play the dominant role. Its activities are currently concentrated in the southern Barents Sea*. Investments could amount to $12 billion in 2007-2015, not including the 1st Snohvit LNG train due onstream this year. Scenario based on Snohvit where a crucial appraisal well was completed in July’07, Eni’s Goliat field, expected onstream in 2010, and a 2nd train at Snohvit starting in 2014.

2008 May 14 06:38 PM

[legmaker:]

I thought this stock was going to kill me but up 9.45% since call, impressive sector that is really taking off. Thank you everyone for your thoughts.

2008 May 18 12:00 PM

[HA65MPH:]

OLD LADY HERE !!..LOVED THE COMMON SENCE WRITTEN HERE...THANKS MIKE , AND ALL !

2008 May 21 11:26 PM

[bullit:]

Comment to Yaz, the Norwegian government were diluted down to 62,5% after the purchase of NHY oil and gas division, they have stated that they are to get back to a level of 67% holding in STL. That means a purchase of roughly 160mill shares, so far they have bought back about 10mill of these so a long way to go still....

2008 Jul 17 06:47 AM