Anadarko Petroleum Corporation
is setting records, which isn't necessarily a surprise given the
fact that oil and gas production in the United States is hitting
levels not seen in many years. In fact, Anadarko's average daily
sales volumes hit a record last quarter. Anadarko is realizing
the benefits of a global, diversified business model, with
significant operations spread across domestic onshore fields, the
deepwater Gulf of Mexico, and several international
As you'd expect, Anadarko's stock price has risen right
alongside its business results. Shares of Anadarko are up an
astounding 41% just since the beginning of the year. This has
expanded its valuation, and as a result it's reasonable to
question whether or not the stock has further room to run.
In a new golden age
You may have heard that oil and gas production is in full
swing in the United States, and that's certainly true. The U.S.
Energy Information Administration has reported that there are now
four oil-producing areas of the United States that are producing
at least one million barrels per day. Oil production is at levels
unseen in decades, and natural gas production is booming thanks
to revolutionary advancements in drilling technology that are
unlocking previously unavailable deposits.
Add it all up, and it should come as no surprise that
exploration and production companies are minting money. Anadarko
delivered record average daily production of 848,000 barrels of
oil equivalent per day. Adjusted earnings per share rose to
$1.32, representing 25% growth year over year. Anadarko is in
great financial shape, with $5.4 billion in cash on hand.
These strong results are occurring throughout the industry.
Devon Energy Corp.
had a great quarter itself. Its U.S. oil production soared 79%
year over year. Operating income jumped 47%, and adjusted
earnings per share rose 16%. With its success, Devon greatly
improved its financial condition during the quarter by paying
down $3.2 billion in debt.
Anadarko valuation: A decent buying
Of course, it's worth noting that there is a cost to buying
Anadarko, which is that its valuation has caught up to its great
business results. With such a dramatic rally just since the
beginning of 2014, its valuation has expanded significantly.
Anadarko trades for 19 times forward earnings, which is a
significant premium to the forward multiple of the broader
And, Anadarko is much more aggressively valued than some of
its closest competitors. For example, Devon Energy trades for
just 11 times forward earnings estimates.
Cash flowing through to shareholders
As Anadarko racks up impressive growth, it's sharing its
success with investors. After its last earnings report,
management increased its dividend by 50% after releasing
Anadarko's current dividend yield is only about 1%. That being
said, with a high rate of dividend growth, your income potential
can greatly increase over time.
Indeed, this isn't the first time Anadarko has rewarded its
investors with a big dividend increase. Over the past five years,
Anadarko has increased its distribution by 24% compounded
The Foolish bottom line
Anadarko is ramping up production across its diverse
portfolio, thanks largely to booming oil and gas production in
the United States. This is resulting in significantly higher cash
flow and a greatly improved financial condition.
That being said, it's reasonable to question whether this is
truly a good time to buy Anadarko. This might seem like a
surprise, given how successful Anadarko has been in recent
months. In times like these, it's useful to remember that even a
very strong company like Anadarko can turn out to be a poor
investment if too high a price is paid.
With that in mind, it may be wise to wait for a slight
pullback before jumping into Anadarko at these levels.
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Is It Time to Buy Anadarko Petroleum Stock?
originally appeared on Fool.com.
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