Newfield Exploration Co. 2014 Annual Valuation $NFX

NewfieldBenjamin 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 5 Undervalued Companies with a High Beta.  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 Newfield Exploration (NYSE:NFX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Newfield Exploration Company (Newfield) is an independent energy company engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids. The Company’s domestic areas of operation include the Mid-Continent, the Rocky Mountains and onshore Texas. Internationally, it focuses on offshore oil developments in Malaysia and China. As of December 31, 2011, it was in the process of drilling 16 gross (9.6 net) exploitation wells and 24 gross (19.7 net) development wells domestically. As of December 31, 2011, internationally, it was drilling one gross (0.6 net) exploratory well in Malaysia. In May 2011, the Company acquired assets in the Uinta Basin of Utah.

NFX Chart

NFX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  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 - FAIL
  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 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 0/5

  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 - FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Balance Sheet – 3/31/2014

Current Assets $587,000,000
Current Liabilities $915,000,000
Total Debt $3,046,000,000
Total Assets $8,651,000,000
Intangible Assets $0
Total Liabilities $5,401,000,000
Outstanding Shares 136,330,000

Earnings Per Share

2014 (estimate) $1.65
2013 $0.80
2012 -$8.77
2011 $3.99
2010 $3.90
2009 -$4.18
2008 -$2.88
2007 $1.32
2006 $4.58
2005 $2.73
2004 $2.63

Earnings Per Share – ModernGraham

2014 (estimate) -$0.20
2013 -$1.03
2012 -$1.83
2011 $1.24
2010 $0.09
2009 -$1.10

Conclusion:

Newfield Exploration is unsuitable for either the Defensive Investor or the Enterprising Investor.  Both investor types have major concerns with the company, ranging from a lack of earnings stability and growth to a lack of dividend payments.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods, should explore other opportunities.  From a valuation perspective, the company appears significantly overvalued after seeing a drop in EPSmg (normalized earnings) from $0.09 in 2010 to an estimated negative $0.20 for 2014.  This drop in earnings does not support the market’s current pricing and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well below the market 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 Newfield Exploration Co. (NFX)?  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.

Disclaimer:  The author did not hold a position in Newfield Exploration Co. (NFX) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

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


Posted

in

,

by

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.