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Noble Energy Inc. (NBL) Annual Valuation

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Oil & gas exploration is an area in which speculation about the future is rampant.  The conversation always seems to revolve around politics, and how the latest legislative proposal will affect the industry.  However, Intelligent Investors will base their investment decisions in the fundamentals, evaluating the company’s riskiness and calculating an intrinsic value.  Only through comparing the company’s intrinsic value to the market place can an investor truly get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Noble Energy, Inc. fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Noble Energy, Inc. (Noble Energy) is an independent energy company engaged in worldwide oil and gas exploration and production. Noble Energy has operations in five core areas: the DJ Basin (onshore United States), the Marcellus Shale (onshore United States), the deepwater Gulf of Mexico (offshore United States), offshore West Africa and offshore Eastern Mediterranean. The areas provide most of its crude oil and natural gas production; visible growth from development projects, and numerous exploration opportunities. In August 2012, it sold the Dumbarton and Lochranza properties in the North Sea to Maersk Oil North Sea Limited. In September 2012, it sold certain oil and natural gas properties in the Permian Basin to Sheridan Holding Company II, LLC. In September 2012, Unit Corporation’s wholly owned subsidiary, Unit Petroleum Company, acquired certain oil and natural gas assets from the Company.

NBL Chart

NBL data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $31.09
MG Opinion Overvalued
Value Based on 3% Growth $31.65
Value Based on 0% Growth $18.55
Market Implied Growth Rate 10.03%
Net Current Asset Value (NCAV) -$20.96
PEmg 28.56
Current Ratio 0.98
PB Ratio 2.48

Balance Sheet – 9/30/2013

Current Assets $2,239,000,000
Current Liabilities $2,282,000,000
Total Debt $4,352,000,000
Total Assets $18,868,000,000
Intangible Assets $631,000,000
Total Liabilities $9,804,000,000
Outstanding Shares 361,000,000

Earnings Per Share

2013 (estimate) $2.89
2012 $2.69
2011 $1.27
2010 $2.05
2009 -$0.38
2008 $3.84
2007 $2.72
2006 $1.90
2005 $2.06
2004 $1.33
2003 $0.39

Earnings Per Share – ModernGraham 

2013 (estimate) $2.18
2012 $1.85
2011 $1.59
2010 $1.84
2009 $1.83
2008 $2.75

Dividend History

NBL Dividend Chart

NBL Dividend data by YCharts

Conclusion:

Noble Energy, Inc. does not meet the standards of the Defensive Investor or the Enterprising Investor.  The company has not had earnings stability or growth over the ten year horizon, has a very poor current ratio, and trades at a high PEmg ratio.  All of these factors combined eliminate the company from contention for the Defensive Investor.  For the Enterprising Investor, the company holds too much debt relative to its current assets, and has not had stable earnings over the five year time period.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should seek other opportunities by reviewing companies that pass the ModernGraham requirements.  The results of the ModernGraham valuation model are also poor, as the company’s intrinsic value appears to be considerably less than the market price.  The company’s EPSmg (normalized earnings) have only grown from $1.83 in 2009 to an estimated $2.18 for 2013.  This level of growth does not even come close to supporting the market’s current implied estimate of over 10% growth for the company.  Accordingly, the company does not appear to be a good value opportunity at this time.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Noble Energy, Inc. (NBL)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Noble Energy, Inc. (NBL) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

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