Integrated Oil Producers: Opportunity in Eni S.p.A. and ConocoPhillips

Includes: COP, E, PZE, REPYY
by: Steven Rubis

Major Integrated Oil and Gas companies are attractive from both valuation and earnings growth perspectives. As the price of oil continues to hover around $70, the major integrated oil producers should continue to see record profits.

Industry: Major Integrated Oil and Gas
Market Cap: $2.4 Trillion
Number of Companies: 22
Sales (ttm): $2.29 Trillion
EBITDA (ttm): $484.5 Billion
Net Income (ttm): $222.1 Billion

Investment Thesis
ConocoPhillips and Eni S.p.A. offer investors the best upside reward with limited downside risk.

ConocoPhillips (NYSE:COP): currently being punished for the acquisition of Burlington Resources, creating a large exposure to the natural gas market. As COP continues to reduce debt, and if natural gas prices rise, the company should experience stronger profits, which will provide a catalyst for unlocking value.

Eni S.p.A. (NYSE:E): according to our analysis, offers investors the best opportunity from a valuation perspective. The company sports a 40% capitalization rate and nearly $72 in book value. We like E from a pure valuation perspective, the company’s assets are quite undervalued in comparison to the industry. With shares trading near book value, we believe that investors have little downside risk, despite some analyst concerns about valuation.

Industry Metrics

Table 1: Key Financial Metrics for the Major Integrated Oil and Gas Industry
oil majors valuation


Table 2: Average Per Share Values for the Major Integrated Oil and Gas Industry

Financial Health

Table 3: Altman Z Score for Selected Major Integrated Oil and Gas Companies

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Business Prospects

Crude Oil Prices: prices continue to rise as strikes at refineries in Africa will affect production. This is partially offset by recent surprises in oil and gas reserves in the United States.

Ethanol: as crude oil prices rise, the government and others benefit by exploring other avenues of energy. If prices continue at the current level or go higher, look for tax cuts or other incentives to help investors and other entities to develop other energy sources.

Russia: any producers with exposure to Russian assets should do exceptionally well. As production and exploration occurs in Russia, these companies will benefit from added reserves and oil production.

Best Values:
1.) Eni S.p.A. (E) – 61% discount to fair value
2.) Petrobras Energy Participaciones SA (NYSE:PZE) – 55% discount to fair value
3.) ConocoPhillips (COP) – 30% discount to fair value
4.) Repsol YPF SA (REP) – 26% discount to fair value

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