An Exploration, Production, and Midstream Oil and Natural Gas Giant

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the year begins, I would like to pinpoint an oil and natural gas giant, Anadarko Petroleum (NYSE: APC).

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Strengths:

  • Steady Revenue Growth:  In 2006, Anadarko reported revenue of $10.19 billion; in 2011, the company announced revenue of $13.97 billion, representing year over year annual growth of 6.51%, a trend which is widely anticipated to sustain into the future, with projections placing 2015 revenue at $19.01 billion; this growth in revenue has resulted from a combination of an increase in crude oil and condensates production as well as a modest increase in natural gas production

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  • Dividend: Anadarko currently pays out quarterly dividends of $0.09, which annualized puts the dividend as yielding 0.50%
  • Institutional Vote of Confidence: 86% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Reasonable Valuation: At the moment Anadarko carries a price to earnings ratio of 19.97, a price to book ratio of 1.99, and a price to sales ratio of 2.59, all of which indicate a company trading with a fairly reasonable valuation

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  • Cash & Equivalents: Currently, the company possesses $2.53 billion of cash and cash equivalents on their balance sheets, a major upside to the business

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  • Diversification: Anadarko is valued at $36.13 billion, and operates in three of the largest segments of the oil and natural gas industries, and by no way has put all their eggs in one basket, giving the company a certain level of diversification and predictability   

Weaknesses:

  • Negative Margins: Anadarko currently carries a net profit margin of -19.08%, representing a weak company which is losing money
  • Debt: At the moment the company possesses $13.10 billion of debt on their balance sheets, a major downside to the business; much of this debt has been accumulated through expansion plans

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  • Margin Compression: In 2007, Anadarko reported a net margin of 33.6%, in 2011, the company announced a net margin of -19.0%, this margin compression is a signal of a weak company, margins are set to recover in 2012 to 17.5%; this margin compression has been caused mostly because of weakness in natural gas and oil prices  
  • Reliance on Volatile Oil & Natural Gas Prices: Anadarko relies heavily on oil and natural gas prices to stay above a certain price for the company to make a profit, and these markets are incredibly volatile, and this reliance on these markets could prove to be a major weakness

Opportunities:

  • Rise in Crude Oil Price: If crude oil prices were to rise, Anadarko’s margins would improve, which could lead to overall company growth

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  • Rise in Natural Gas Price: If natural gas prices were to rise, Anadarko’s margins would improve, which could lead to overall company growth

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  • Dividend Growth: Since implementing their dividend program in 1986, Anadarko has consistently raised their dividend payouts, a trend which is highly expected to sustain into the future

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  • Increase in Production: A major opportunity for Anadarko is increasing production (Crude Oil & Condensates Production 2006: 70 million barrels 2011: 79 million barrels) and a further increase in production could fuel growth

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  • Increase in Global Energy Demand: Global energy demand is highly expected to increase as the world further develops, fueling energy prices and increasing Anadarko’s margins

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Threats:

  • Drop in Oil & Natural Gas Prices: Any drop in oil or natural gas prices are a major threat to Anadarko’s business
  • Stagnant Economic Landscape: In a stagnant economic landscape, economic activity declines, leading to less demand for energy and lower prices for oil and natural gas, threatening Anadarko’s business

Competition:

Major publically traded competitors of Anadarko include ConocoPhilips (NYSE: COP), Marathon Oil (NYSE: MRO), EOG Resources (NYSE: EOG), and Chevron (NYSE: CVX). All of these companies operate in the same industries as Anadarko. ConocoPhilips is valued at $69.28 billion, pays out a dividend yielding 4.63%, and carries a price to earnings ratio of 10.27. Marathon is valued at $21.06 billion, pays out a dividend yielding 2.28%, and carries a price to earnings ratio of 11.68. EOG is valued at $32.13 billion, pays out a dividend yielding 0.57%, and carries a price to earnings ratio of 26.81. Chevron is valued at $208.334 billion, pays out a dividend yielding 3.38%, and carries a price to earnings ratio of 8.73.

The Foolish Bottom Line:

Financially, Anadarko is not as strong as an investor would like. While the company possesses revenue growth and a growing dividend, the company holds a massive debt load and negative margins. The company’s future is filled with opportunity that could lead to growth; however the company’s reliance on strong energy prices is a major weakness. All in all, Anadarko is just too financially weak and shaky for my investment. 


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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