Why Is Petro-Canada Such a Bargain?

Looking at the shares Canadian integrated oil and gas firm Petro-Canada (PCZ) [TSE: PCA] you would assume that oil is on the way down to where it was in the days where you could pay 20 bucks to fill up your car.

If we can forget about $60 oil and C$0.60/L gas, then Petro-Canada  shares are looking cheaper than the samples at Costco (COST). The stock is now trading at a Price to Earnings (P/E) ratio of a staggering 5.8x trailing earnings. This comes after a 77% profit gain and a 54% dividend raise in the most recent quarter. Is this type of earnings momentum sustainable? Likely not, as oil has touched $145 recently before dropping to the current $115 range; but it is difficult to see the current share price as reflecting anything other than sector rotation due to the current sentiment (right or wrong). Traders seem to be betting that oil is sinking down to at least $90/barrel the way the oil sector is trading, however Petro-Canada traders must be betting on a much lower price for oil for a long time. Either that or some very negative, company specific results.

It is hard to imagine that there would be much downside on this stock while it trades at these levels. In order for this price to truly reflect the company's mid term future I would imagine that their production would have to decline in tandem with oil declining in a big way. With this stock you get exposure to conventional oil, oil sands, refining, marketing, and natural gas.

Comments

[DrT:]

The company has a history of bonehead management. They've done better lately but they're still the same team. I think there's no market trust for proven klutzes.

2008 Aug 14 10:45 PM

[DrT:]

Still they are dead cheap and I own some.

2008 Aug 14 10:47 PM

[Steven Ward:]

PCZ's oil sands project in partnership with Tec Cominco and UTS will go over budget like CNR's did. However, once up and running Katie bar the door.

PCZ is the cheapest integrated on the market today. But in the last two days I've seen numerous articles advocating its purchase. This is a temporary contrarian signal, so don't buy for several months because it will get cheaper than higher.

2008 Aug 15 09:22 AM

[Dan Brockway:]

This company is trading at 4.1 times cash flow (9/11/08). I can not believe that some major that wants more exposure to oil sands will not be looking to buy this company at this price.

2008 Sep 11 08:45 AM

[Stef:]

I owned some PCZ for 3 yrs and fail to nderstand why this stock is not at 80$ yet. Their sales and profit are getting better yrs over yrs and their P/E melted from 15 to 5 times over time. In addition, their own stake in significant Oil sand reserve which is truly not reflected in thier price. Face it, Oil will eventually trade at 200$/B given enought time and sitting on reserves does have long term value

2008 Sep 13 11:46 AM