Deutsche Bank Explains Why It Likes Integrated Oil
Deutsche Bank initiated coverage of integrated oil companies following three years of restructuring in the industry.
The major impacts of the restructuring initiative is increased WTI exposure, lower production, an increase in U.S. unconventional production and a significant increase in free cash flow.
Ryan Todd writes, “We believe that not only is the emerging group an attractive investment for investors looking for a balance between growth and returns/income, but that within this group, the ‘formerly integrateds’ offer underappreciated value.”
Regarding value, the research note states that the basket of companies studied are trading at 5.2 times EV/DACF compared to a 6.2 multiple for large diversified companies. Because this discount has not changed much over the course of the restructuring process, Todd is mostly bullish on the industry. Deutsche Bank initiated four integrated oil companies with a Buy and three with a Hold.
Todd continues, “the lines have increasingly blurred between traditional E&Ps and integrated oils (both operationally and in terms of sell-side analyst coverage). In its place, there is an increasing critical mass of companies who are effectively “tweeners”, with volume growth that is higher than the super-majors, but lagging that of pure, growth focused E&Ps, but with a better balance sheet and often some component of cash return to shareholders (or at least the signs of potential).”
Exxon Mobil (NYSE: XOM) Hold, $105
Marathon Oil (NYSE: MRO) Buy $46
Occidental Petroleum (NYSE: OXY) Hold $110
Murphy Oil (NYSE: MUR) Hold $76
Hess (NYSE: HES) Buy $112
Chevron (NYSE: CVX) Buy $142
ConocoPhillips (NYSE: COP) $94
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