Oil & Gas Stocks

Anadarko Petroleum Corp Valuation – January 2016 Update $APC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  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 or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  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 stock analysis showing a specific look at how Anadarko Petroleum Corp (APC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Anadarko Petroleum Corporation is an independent exploration and production company. The Company is engaged in the exploration, development, production, and marketing of natural gas, oil, condensate, natural gas liquids (NGLs), and anticipated production of liquefied natural gas (LNG). Its assets include United States onshore resource plays in the Rocky Mountains area, the southern United States, the Appalachian basin, and Alaska. The Company has three segments: Oil and gas exploration and production, Midstream and Marketing. Oil and gas exploration and production segment explores for and produces natural gas, oil, condensate, and NGLs, and plans for the development and operation of its LNG project. Midstream segment engages in gathering, processing, treating, and transporting oil, natural-gas, and NGLs production. Marketing segment sells oil, natural-gas, and NGLs production. The Company is also an independent producer in the deepwater Gulf of Mexico.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of APC – January 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,381,007,756 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.17 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -155.73% Fail
6. Moderate PEmg Ratio PEmg < 20 -8.88 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.41 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.17 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 21.22 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

APC value Chart January 2016

EPSmg -$4.39
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth -$63.64
MG Value based on 0% Growth -$37.30
Market Implied Growth Rate -8.69%
Current Price $38.96
% of Intrinsic Value N/A

Anadarko Petroleum Corp does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings growth or stability over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $0.04 in 2011 to an estimated loss of $4.39 for 2015.  This level of negative EPSmg does not support a positive valuation.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

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 Anadarko Petroleum Corp (APC)?  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.

Stage 3: Information for Further Research

APC Charts January 2016

Net Current Asset Value (NCAV) -$58.89
Graham Number #NUM!
PEmg -8.88
Current Ratio 1.17
PB Ratio 1.41
Dividend Yield 2.77%
Number of Consecutive Years of Dividend Growth 3

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $5,187,000,000
Total Current Liabilities $4,438,000,000
Long-Term Debt $15,892,000,000
Total Assets $49,182,000,000
Intangible Assets $6,343,000,000
Total Liabilities $35,103,000,000
Shares Outstanding (Diluted Average) 508,000,000

Earnings Per Share History

Next Fiscal Year Estimate -$12.17
Dec2014 -$3.47
Dec2013 $1.58
Dec2012 $4.74
Dec2011 -$5.32
Dec2010 $1.52
Dec2009 -$0.28
Dec2008 $6.91
Dec2007 $8.08
Dec2006 $10.24
Dec2005 $4.90
Dec2004 $3.18
Dec2003 $2.55
Dec2002 $1.61
Dec2001 -$0.38
Dec2000 $2.08
Dec1999 $0.13
Dec1998 -$0.21
Dec1997 $0.45
Dec1996 $0.43

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$4.39
Dec2014 -$0.40
Dec2013 $0.91
Dec2012 $0.89
Dec2011 $0.04
Dec2010 $3.57
Dec2009 $5.06
Dec2008 $7.37
Dec2007 $7.00
Dec2006 $5.80
Dec2005 $3.18
Dec2004 $2.15
Dec2003 $1.49
Dec2002 $0.86
Dec2001 $0.46
Dec2000 $0.77
Dec1999 $0.13

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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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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