Newfield Exploration Co Valuation – August 2016 $NFX

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 Companies Benjamin Graham Would Invest In Today - July 2016.  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 Newfield Exploration Co (NFX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Newfield Exploration Company is an independent energy company engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids (NGLs). The Company’s operations are focused primarily on large scale, onshore liquids-rich resource plays in the United States. Its segments are the United States and China. Its principal areas of operation are the Anadarko and Arkoma Basins of Oklahoma, the Williston Basin of North Dakota, the Uinta Basin of Utah and the Maverick, and Gulf Coast basins of Texas. In addition, it has oil developments offshore China. Its proved reserves of over 510 million barrels of oil equivalents (MMBOE) consist of over 310 MMBOE proved developed producing, 20 MMBOE proved developed non-producing and 180 MMBOE proved undeveloped reserves. Its proved liquids reserves are over 290 million barrels. Over 71% of its proved liquid reserves are crude oil or condensate. Its proved natural gas reserves are over 1,305 billion cubic feet (Bcf).

NFX Chart

NFX data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of NFX – August 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 $8,914,053,706 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.97 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 496.96% Pass
6. Moderate PEmg Ratio PEmg < 20 -6.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.28 Fail
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 0.97 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -127.89 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

NFX value chart August 2016

EPSmg -$7.12
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$103.27
MG Value based on 0% Growth -$60.54
Market Implied Growth Rate -7.43%
Current Price $45.28
% of Intrinsic Value N/A

Newfield Exploration Co. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $-1.84 in 2012 to an estimated $-7.12 for 2016. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Newfield Exploration Co. revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -6.36, which was below the industry average of 55.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.02.

Newfield Exploration Co. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

NFX charts August 2016

Net Current Asset Value (NCAV) -$14.02
Graham Number $0.00
PEmg -6.36
Current Ratio 0.97
PB Ratio 10.28
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $638,000,000
Total Current Liabilities $657,000,000
Long-Term Debt $2,430,000,000
Total Assets $4,285,000,000
Intangible Assets $0
Total Liabilities $3,413,000,000
Shares Outstanding (Diluted Average) 198,000,000

Earnings Per Share History

Next Fiscal Year Estimate -$6.95
Dec2015 -$21.18
Dec2014 $6.52
Dec2013 $0.94
Dec2012 -$8.80
Dec2011 $3.99
Dec2010 $3.91
Dec2009 -$4.18
Dec2008 -$2.88
Dec2007 $3.44
Dec2006 $4.58
Dec2005 $2.73
Dec2004 $2.63
Dec2003 $1.79
Dec2002 $0.81
Dec2001 $1.28
Dec2000 $1.47
Dec1999 $0.40
Dec1998 -$0.78
Dec1997 $0.54
Dec1996 $0.52

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$7.12
Dec2015 -$6.04
Dec2014 $1.46
Dec2013 -$0.99
Dec2012 -$1.84
Dec2011 $1.38
Dec2010 $0.38
Dec2009 -$0.68
Dec2008 $1.41
Dec2007 $3.38
Dec2006 $3.07
Dec2005 $2.16
Dec2004 $1.78
Dec2003 $1.29
Dec2002 $0.90
Dec2001 $0.83
Dec2000 $0.54

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – June 2015
Newfield Exploration Company Analysis – 2015 Annual Update $NFX
20 Companies in the Research Spotlight This Week – June 7, 2014
Newfield Exploration Co. 2014 Annual Valuation $NFX

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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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