Exxon & Total: Strong Buys in the Energy Patch

05/03/2017 2:50 am EST

Focus: ENERGY

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Growth and income expert Crista Huff has reiterated her strong buy recommendations for two leading global oil stocks; here's her update from Cabot Undervalued Stock Advisor.

ExxonMobil (XOM) reported first quarter 2017 earnings per share of $0.95 today, when analysts were expecting $0.85.

The quarter’s successes were led by rising oil prices and cost reductions. Revenue was $63.29 billion vs. the consensus estimate of $64.73 billion.

XOM offers investors aggressive earnings growth, a low P/E, low debt levels and an attractive dividend yield. It announced a modest quarterly dividend increase on April 27, from $0.75 to $0.77 per share. XOM now yields 3.7%.

chart 1

After a quick run-up to $92 in December, the share price receded to $81 in February, and has since been trading sideways.

Given a stable or bullish stock market, I expect XOM to rebound to $92 this year, offering new investors a potential 14% total return this year. We rate the stock a Strong Buy.

Total S.A. (TOT) reported first quarter results on April 27. Earnings per share were $1.01 (U.S. dollars, not euros), when analysts were expecting an average of $0.95 to $0.96 EPS.

The quarter was characterized by good operational performance, higher commodity prices and lower production costs.

Free cash flow of $1.7 billion rose to a six-year high, and fully covered the dividend, which the market was not expecting. The yield varies; it is approximately 4.2%.

chart 2

Total’s long-term debt ratio decreased from 27.1% in the fourth quarter of 2016 to 22.7% in the first quarter of 2017, due to the $3.2 billion sale of Atotech. (I consider 23% to be a relatively low number.)

TOT is a greatly undervalued, aggressive growth stock. The share price rose past its recent trading range in early April, and continues to ratchet upwards.

I expect the stock to produce very attractive returns for investors going forward. We rate the stock a Strong Buy and recommend purchase now.

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