On Apr 1, 2013 we have maintained our Neutral recommendation
on oil and gas major
). TOTAL currently has a Zacks Rank #3 (Hold).
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Why the Reiteration
TOTAL continues to perform well and leverage its strong financial
position despite an earnings miss in the fourth quarter of 2012.
Earnings per share were lower than expected primarily due to
lower sales volume.
The aggressive exploration strategy alongside acquisition of new
drilling licenses aids the company to add to its reserve base.
TOTAL also continues to unlock value from its non-core midstream
and downstream assets. In 2012, TOTAL acquired assets worth $4
billion and divested assets worth $5.9 billion. The fund
generated from divestitures will allow the company to concentrate
on its core operations.
TOTAL's strong balance sheet gives it the flexibility to continue
returning capital to shareholders through increased dividend
payouts, while maintaining a vigorous capital expenditure
program. The company was also able to lower its outstanding debt
in 2012. The net debt-to-equity ratio was 21.4% as of Dec 31,
2012 versus 23.0% as of Dec 31, 2011.
However, the ongoing economic weakness in Europe and the
prevailing insecurity in Africa could weigh on TOTAL's operation.
We remind investors that a substantial portion of the company's
production comes from these regions. TOTAL's operations in more
than 130 countries across five continents expose it to risks
associated with doing business abroad.
TOTAL's results are directly exposed to oil and gas prices, which
are inherently volatile and subject to complex market forces. A
sustained decline in oil prices and European refining margins
will impact the company's performance.
Other oil and gas companies which are performing well and warrant
a look are
) having a Zacks Rank # 2 (Buy). We have
EPL Oil & Gas Inc.
) which carries a Zacks Rank #1 (Strong Buy).