stevenB

McDonald's at a Crossroads

The DCF analysis table is an excellent analytical tool which is premised on free cash flow. Given the current dividend payout rate, I believe the stock may offer some price protection on the downside which might negate (or at least make less probable) the lower numbers contained in the table.

Negative Trend for Oil Exploration and Production Stocks

While your article accurately notes the recent decline in crude and natural gas prices, it contains serious shortcomings. First, most E&P company stocks did not rise proportionately with the sharp rise in energy prices we witnessed in the earlier part of the year. Analysts wisely discounted a portion of this rise as a bubble-type phenomena. Second, E&P companies are more accurately measured by multiples of cashflow rather than earnings. Anadarko, for example, produced discretionary cashflow of $2.31 billion in Q2---the equivalent of approximately $19.62 on an annualized basis. This means the company, at $57 per share, trades at a stunningly low 2.9x cashflow. Third, there is extreme disconnect presently between equity values an Net Asset Values (ie: reserves) with many E&P companies trading at roughly 50% to 60% NAV. In summary, there is very little downside in the higher quality large E&P companies even with a return to what many industry experts would consider sustainable pricing: $80 crude and $8 natural gas.