Tuesday Integrated Wrap-Up: VLO, PBR Rise; MUR, HES Fall
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Integrated oil companies slightly edged the S&P 500 index today +0.13% to -0.10%. Among the day's leaders, Valero Energy (NYSE: VLO) and Petroleo Brasileiro (NYSE: PBR) shined, gaining 2.85% and 1.45% on volumes of 11.60M and 24.26M respectively. Laggards in the industry included Hess Corp. (NYSE: HES), and Murphy Oil (NYSE: MUR). These stocks traded -2.16% and -2.07% on volumes of 4.39M and 1.64M, respectively.
Sector-wide news included the rising dollar sending crude futures downward; Ernst & Young asserting that the margin strength of IOCs opposed to refiners and E&Ps will result in an advantaged playing field for IOCs with regards to emerging market growth; and an overall market cap increase in 2011 for the 50 largest energy companies in spite of state-controlled oil companies wiping away substantial value.
Valero Energy saw its shares rise today as it seems the street has finally noticed its compelling undervaluation. Buy-and-hold investors should see substantial upside in the security's fundamentals, especially if oil prices can remain at current levels for the remainder of 2012. Currently Valero's book value exceeds the cost per share of common stock, its P/E sits at 8.57, its PEG is at 0.34, and its ROE is an improving 13.91%.
A fellow Fool screened for low above-average dividend yields and payout ratios of less than 20% to discover that Valero made the list and its payout ratio was a minimal 5.1%. Thus, both the stock price and dividend payout could see increases in the years ahead. Overall, as it stands currently, Valero is an attractive buy-and-hold play.
Petroleo Brasileiro continued its gains from yesterday as the combination of Latin American E&P optimism and an expected interest rate cut in Brazil have investors bullish on the security. A fellow Fool noted that although this security has underwhelming ROE and excessive debt, it does have tenured management and consistent earnings generation. I am more bullish on the security overall.
Chiefly, its fundamentals are similar those of Valero. Its P/E is at 9.35, its P/B is 1.09, and its P/S is at 1.52. Further, Petroleo Brasileiro's cash flow increase of 17.5% over the last five years demonstrates that it should eventually rid itself of debt problems if the global demand for oil can continue unabated.
Murphy Oil declined today due to a $370M write-down on weaker than expected output from the Congo. Fundamentally, the security offers decent metrics for buy-and-hold investors, but the glaring -$184.02M in levered free cash flow for the trailing twelve months tarnishes its resume slightly. Last October Murphy Oil closed two of its U.S. refineries and if its retreat continues, buy-and-hold investors should focus on margins. If Murphy strengthens its margins as a result of a more streamlined model, it could peak the interest of many.
Finally, Hess Corp. saw its shares drop in spite of a recent outperform upgrade from Howard Weil analysts. Other analysts are somewhat bearish on the security on account of its overexposure in the E&P segment. I am on the bearish side on the ledger as well. Currently, Hess is underperforming the industry average in YoY quarterly revenue growth (10.80% to 15.50%), and P/E (10.67 to 10.15). The balance sheets for Hess in the most recent quarter are somewhat unattractive as well. Hess' $827M in total cash is dwarfed by its $5.59B total debt. However, if a substantial injection of cash coincides with an earnings outperformance tomorrow it will be difficult to remove the foot from my mouth.
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