Feature Industry Review Oil & Gas

The Best Companies of the Oil & Gas Industry – August 2015

A GlimpseWhile ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself.  With that in mind, this article will take a brief look at the best companies of the oil & gas industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.

Out of the more than 550 companies reviewed by ModernGraham, 48 were identified as being closely related to the oil & gas industry.  Of those, only three are suitable for the Defensive Investor, six are suitable for the Enterprising Investor, and the remaining 39 are considered speculative at this time.  Excluding any extreme outliers, the average company was rated as being priced at 108.76% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 20.34.  The industry as a whole, therefore would appear to be fairly valued, particularly in comparison to the market (see Mr. Market’s Mental State).

The Elite

The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

Denbury Resources Inc. (DNR)

Denbury Resources Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the company size, insufficient earnings growth or stability over the last ten years along with the short dividend history.  The Enterprising Investor is concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.88 in 2011 to an estimated $1.05 for 2015.  This level of demonstrated earnings growth surpasses the market’s implied estimate of 2.58% annual earnings decline over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

FMC Technologies Inc. (FTI)

FMC Technologies qualifies for the Enterprising Investor but is not suitable for the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the lack of dividends.  The Enterprising Investor is only concerned with the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.50 in 2011 to an estimated $2.29 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.03% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Helmerich & Payne Inc. (HP)

Helmerich & Payne Inc. qualifies for the more conservative Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the valuation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.24 in 2011 to an estimated $4.77 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.85% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Valero Energy Corporation (VLO)

Valero Energy Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, and the insufficient earnings growth or stability over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.95 in 2011 to an estimated $5.66 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.58% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Western Refining Inc. (WNR)

Western Refining Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years as well as the inconsistent dividend record over that period.  The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.13 in 2011 to a gain of $3.97 for 2015.  This level of demonstrated earnings growth surpasses the market’s implied estimate of 1.35% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

National Oilwell Varco (NOV)

National Oilwell Varco passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years and the short dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $4.24 in 2011 to an estimated $4.50 for 2015. This level of demonstrated growth supports the market’s implied estimate for annual earnings growth of 0.41% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 1.27% annually. The ModernGraham valuation model reduces the actual growth to an even more conservative figure when making an estimate, but still returns an estimate of intrinsic value within a margin of safety relative to the current price, indicating that National Oilwell Varco is fairly valued at the present time.  (See the full valuation on Guru Focus)

The Full List

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Clicking on the company name will take you to the company’s latest valuation.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
APA Apache Corporation S 12/1/2014 $126.59 $44.83 35.41% 7.03 2.23%
APC Anadarko Petroleum Corporation S 12/5/2014 $0.00 $70.90 N/A 33.13 N/A
BHI Baker Hughes Incorporated S 5/26/2015 $0.00 $54.72 N/A 26.69 1.24%
CAM Cameron International Corporation D 6/23/2015 $41.68 $64.95 155.83% 23.20 N/A
CHK Chesapeake Energy Corporation S 1/25/2015 $33.98 $7.36 21.66% 8.36 N/A
COG Cabot Oil & Gas Corporation S 12/1/2014 $17.41 $23.30 133.83% 39.49 N/A
COP ConocoPhillips S 1/25/2015 $259.85 $46.82 18.02% 6.94 6.32%
CVX Chevron Corporation S 6/2/2015 $33.69 $80.44 238.77% 9.32 5.32%
DNR Denbury Resources Inc. E 8/9/2015 $15.15 $4.16 27.46% 3.96 N/A
DO Diamond Offshore Drilling Inc S 2/27/2015 $0.00 $24.29 N/A 5.51 N/A
DVN Devon Energy Corp S 1/26/2015 $83.74 $42.22 50.42% 11.57 N/A
EOG EOG Resources Inc S 6/1/2015 $37.86 $77.31 204.20% 34.06 0.87%
EPD Enterprise Products Partners L.P. S 7/21/2015 $37.09 $28.62 77.16% 21.52 5.31%
EQT EQT Corporation S 5/9/2015 $4.66 $77.71 1667.60% 45.18 0.15%
ESV ENSCO PLC S 7/21/2015 $0.00 $17.84 N/A N/A N/A
FTI FMC Technologies, Inc. E 8/12/2015 $55.18 $34.29 62.14% 14.97 N/A
GAS AGL Resources Inc. S 1/6/2015 $20.93 $60.56 289.35% 21.71 3.37%
HAL Halliburton Company D 6/8/2015 $24.97 $38.57 154.47% 15.37 1.87%
HES Hess Corp. S 5/12/2015 $25.89 $57.46 221.94% 12.28 N/A
HP Helmerich & Payne, Inc. D 8/16/2015 $108.12 $57.65 53.32% 12.09 4.77%
KMI Kinder Morgan Inc S 5/14/2014 $0.00 $32.63 N/A 33.30 6.01%
MMP Magellan Midstream Partners, L.P. S 7/22/2015 $111.93 $71.94 64.27% 24.72 4.11%
MPC Marathon Petroleum Corp S 7/23/2015 $172.12 $47.22 27.43% 10.56 2.71%
MRO Marathon Oil Corporation S 3/21/2015 $10.69 $16.65 155.75% 4.93 N/A
MUR Murphy Oil Corporation S 11/17/2014 $24.75 $30.04 121.37% 6.56 4.66%
NBL Noble Energy, Inc. S 2/14/2015 $38.07 $34.53 90.70% 14.88 2.09%
NBR Nabors Industries Ltd. S 2/27/2015 $0.00 $11.40 N/A 16.06 N/A
NE Noble Corp plc S 4/8/2015 $0.00 $12.82 N/A 7.87 N/A
NFX Newfield Exploration Co. S 6/3/2015 $2.25 $31.60 1404.44% 28.99 N/A
NOV National-Oilwell Varco, Inc. E 7/22/2015 $46.83 $41.63 88.90% 9.25 4.42%
OXY Occidental Petroleum Corporation S 6/11/2015 $0.00 $71.84 N/A 22.66 N/A
PSX Phillips 66 S 12/19/2014 $230.79 $77.23 33.46% 12.89 2.90%
PXD Pioneer Natural Resources S 1/5/2015 $0.00 $121.33 N/A 85.44 0.07%
QEP QEP Resources Inc S 2/15/2015 $0.00 $13.70 N/A 12.02 N/A
RDC Rowan Companies PLC S 3/29/2015 $0.00 $17.81 N/A 12.20 2.25%
RIG Transocean LTD S 5/14/2015 $0.00 $13.58 N/A N/A N/A
RRC Range Resources Corp. S 8/18/2015 $36.27 $38.33 105.68% 40.78 0.42%
SE Spectra Energy Corp. S 4/9/2015 $13.51 $28.86 213.62% 18.27 5.13%
SLB Schlumberger Limited. E 7/22/2015 $51.02 $76.05 149.06% 18.97 2.63%
SPH Suburban Propane Partners LP S 1/23/2015 $0.00 $37.00 N/A 24.18 9.59%
SWN Southwestern Energy Company S 12/10/2014 $18.22 $16.00 87.82% 13.22 N/A
TDW Tidewater Inc. S 6/12/2015 $0.00 $17.00 N/A 13.39 N/A
TSO Tesoro Corporation S 10/16/2014 $151.84 $93.46 61.55% 23.72 2.14%
VLO Valero Energy Corporation E 7/23/2015 $218.01 $59.01 27.07% 10.43 2.71%
WMB Williams Companies Inc S 2/2/2015 $24.95 $48.92 196.07% 75.26 4.82%
WNR Western Refining, Inc. E 7/31/2015 $153.02 $43.23 28.25% 10.89 3.15%
WPX WPX Energy Inc S 7/29/2015 $0.00 $7.06 N/A N/A N/A
XOM Exxon Mobil Corporation S 6/4/2015 $42.51 $75.01 176.45% 11.61 3.89%

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To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
APA Apache Corporation S 12/1/2014 $44.83 2.23%
APC Anadarko Petroleum Corporation S 12/5/2014 $70.90 N/A
BHI Baker Hughes Incorporated S 5/26/2015 $54.72 1.24%
CAM Cameron International Corporation D 6/23/2015 $64.95 N/A
CHK Chesapeake Energy Corporation S 1/25/2015 $7.36 N/A
COG Cabot Oil & Gas Corporation S 12/1/2014 $23.30 N/A
COP ConocoPhillips S 1/25/2015 $46.82 6.32%
CVX Chevron Corporation S 6/2/2015 $80.44 5.32%
DNR Denbury Resources Inc. E 8/9/2015 $4.16 N/A
DO Diamond Offshore Drilling Inc S 2/27/2015 $24.29 N/A
DVN Devon Energy Corp S 1/26/2015 $42.22 N/A
EOG EOG Resources Inc S 6/1/2015 $77.31 0.87%
EPD Enterprise Products Partners L.P. S 7/21/2015 $28.62 5.31%
EQT EQT Corporation S 5/9/2015 $77.71 0.15%
ESV ENSCO PLC S 7/21/2015 $17.84 N/A
FTI FMC Technologies, Inc. E 8/12/2015 $34.29 N/A
GAS AGL Resources Inc. S 1/6/2015 $60.56 3.37%
HAL Halliburton Company D 6/8/2015 $38.57 1.87%
HES Hess Corp. S 5/12/2015 $57.46 N/A
HP Helmerich & Payne, Inc. D 8/16/2015 $57.65 4.77%
KMI Kinder Morgan Inc S 5/14/2014 $32.63 6.01%
MMP Magellan Midstream Partners, L.P. S 7/22/2015 $71.94 4.11%
MPC Marathon Petroleum Corp S 7/23/2015 $47.22 2.71%
MRO Marathon Oil Corporation S 3/21/2015 $16.65 N/A
MUR Murphy Oil Corporation S 11/17/2014 $30.04 4.66%
NBL Noble Energy, Inc. S 2/14/2015 $34.53 2.09%
NBR Nabors Industries Ltd. S 2/27/2015 $11.40 N/A
NE Noble Corp plc S 4/8/2015 $12.82 N/A
NFX Newfield Exploration Co. S 6/3/2015 $31.60 N/A
NOV National-Oilwell Varco, Inc. E 7/22/2015 $41.63 4.42%
OXY Occidental Petroleum Corporation S 6/11/2015 $71.84 N/A
PSX Phillips 66 S 12/19/2014 $77.23 2.90%
PXD Pioneer Natural Resources S 1/5/2015 $121.33 0.07%
QEP QEP Resources Inc S 2/15/2015 $13.70 N/A
RDC Rowan Companies PLC S 3/29/2015 $17.81 2.25%
RIG Transocean LTD S 5/14/2015 $13.58 N/A
RRC Range Resources Corp. S 8/18/2015 $38.33 0.42%
SE Spectra Energy Corp. S 4/9/2015 $28.86 5.13%
SLB Schlumberger Limited. E 7/22/2015 $76.05 2.63%
SPH Suburban Propane Partners LP S 1/23/2015 $37.00 9.59%
SWN Southwestern Energy Company S 12/10/2014 $16.00 N/A
TDW Tidewater Inc. S 6/12/2015 $17.00 N/A
TSO Tesoro Corporation S 10/16/2014 $93.46 2.14%
VLO Valero Energy Corporation E 7/23/2015 $59.01 2.71%
WMB Williams Companies Inc S 2/2/2015 $48.92 4.82%
WNR Western Refining, Inc. E 7/31/2015 $43.23 3.15%
WPX WPX Energy Inc S 7/29/2015 $7.06 N/A
XOM Exxon Mobil Corporation S 6/4/2015 $75.01 3.89%

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Disclaimer:
 The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.

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