Founded in 1880,
Imperial Oil Limited
) is engaged in the exploration and development of crude oil and
natural gas resources in Canada. The Calgary-headquartered
company enjoys a dominant position in several Canadian oil sands
projects that include Cold Lake, Kearl, and Athabasca. Imperial
Oil engages in three business segments: Upstream, Downstream, and
Imperial Oil became a Zacks #1 Rank (Strong Buy) on November 30
after announcing its intention to acquire a 50% stake in an
unconventional oil and gas producer. The company also reported an
impressive third quarter earnings surprise in early November.
With a forward P/E of just 10.4, Canada's second-largest energy
company looks like a solid value pick with earnings that are
expected to continue rising.
Record Downstream Earnings Drives Strong Q3
Imperial Oil reported third quarter earnings per share of $1.22
on November 1, beating the Zacks Consensus Estimate by 20% and
last year's performance by 21%. Revenues of C$8.3 billion were up
5% year over year from C$7.9 billion.
Results were driven by record downstream (oil refining and
retailing) profits, which nearly doubled year over year to C$536
million on the back of high refining margins. This more than made
up for the slight decline in its upstream segment net income.
Proposed Celtic Stake Buy to Help Diversify Resource
On November 28, Imperial Oil agreed to acquire a 50% stake in
Celtic Exploration Ltd., following the latter's proposed buyout
Exxon Mobil Corporation
). Imperial Oil, which itself is majority owned by XOM, is ready
to shell out C$1.55 billion for a half interest in the
Calgary-based liquids-rich unconventional natural gas producer.
The transaction - waiting regulatory and shareholder approval -
will allow Imperial Oil to get hold of promising oil and gas
properties in the Montney shale, Duvernay shale and other regions
of Alberta. In particular, with the Celtic stake buy, the company
will be able to complement its predominantly crude-oil-focused
portfolio with attractive natural gas liquids acreage.
Solid Earnings Momentum
Following the third quarter earnings beat, the Zacks Consensus
Estimate for 2012 is up 11% to $4.18 in the past 60 days. Given
the $3.75 per share earned in 2011, the projected growth rate
stands at 12% for 2012.
In addition to trading around 10.4 times forward estimates (a 17%
discount to the peer group average of 12.5x), Imperial Oil has a
price-to-book (P/B) ratio of 2.3, which suggests that the stock
is still undervalued. (A P/E below 15.0 and a P/B ratio under 3.0
generally indicate value.) Additionally, the company sports a
trailing 12-month return on equity (ROE) of 24.8% - significantly
above the 15.3% that similar firms offer. This speaks to Imperial
Oil's efficient management that has consistently maintained a
solid balance sheet with zero net debt.
IMPERIAL OIL LT (IMO): Free Stock Analysis
EXXON MOBIL CRP (XOM): Free Stock Analysis
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