Monday Integrated Wrap-Up: VLO Rises, MUR Falls
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Integrated oil stocks outperformed the S&P 500 index +0.06% to -0.25% in today's session. Leaders included Valero (NYSE: VLO), and BP (NYSE: BP). These stocks traded up 0.70% and 1.03% on volumes of 7.25M and 8.98M, respectively. Laggards were Murphy Oil (NYSE: MUR) and Petroleo Brasileiro (NYSE: PBR). These securities fell 2.65% and 1.29% on volumes of 1.98M and 10.32M, respectively.
Sector-wide news included news of oil legislation in Iraq that could come to fruition in February; West African crude rising due to Asian demand; and a compelling editorial demonstrating the potential commodity boon that could result from Europe's debt crisis.
Shares of Valero Energy rose today in some part due to recent announcements that ConocoPhillips, Hess, and Sunoco have shut down some of their refineries. These announcements along with a Citi analyst's projection that refiners should see better margins in 2012 and Valero's recent refinery purchases from Chevron last August and Murphy Oil last October should pique the interest of investors looking for market beating returns. When one takes the company's current valuation into consideration, I firmly believe that buy-and-hold investors should direct attention to its shares.
More specifically, when compared to the industry average, Valero looks quite alluring. The company's P/E (8.66), P/S (0.12), 5-year expected PEG (0.39), and P/B (0.89), all best the industry averages. To add to these valuations, Valero's balance sheets and cash flow statements are healthy enough to allow the company to grow its refining base further. Overall, if gasoline consumption begins to increase again, these shares stand to perform fantastically. On the other hand, if gasoline continues to slump, this security still seems to be undervalued. Either way, buy-and-hold investors should find a lot of merit with Valero.
Murphy Oil saw its shares fall today probably as a lagged response to its recent earnings miss. Although Murphy was able to grow its total 4Q revenue by 22.5% to $6.82 billion from $5.6 billion reported in the year-ago period, its overall oil production only grew by 6.8%. With news that the company is divesting some of its downstream operations, Murphy needs to grow its oil production through 2012 at much greater rates. Overall, Murphy has increased its total sales since 2009, and looks to be adjusting its business model toward a distinct focus on upstream operations. If the company's net profit margins can return to 2008 levels (6.3%), investors should be rewarded.
All told, buy-and-hold investors considering Murphy at this moment must have wide risk-tolerance. This is due to the reality that upstream operations in this industry are never a given. As an example, Murphy had to take an impairment charge of $368.6 million for its less than expected production and overall oil recovery from the Azurite field in the Republic of the Congo.
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