Risk/Reward Balanced at TOTAL - Analyst Blog

We have maintained our Neutral recommendation on oil and gas major TOTAL S.A. ( TOT ). Aggressive drilling and a strong financial position open up new opportunities for the company. On the other side of the coin, global operations expose it to geo-political risks and environmental hazards.

Why the Reiteration?

Third quarter 2012 earnings came in at $1.85 surpassing the Zacks Consensus Estimate of $1.78. Total revenue at the end of third-quarter 2012 was $62.37 billion as against $65.21 billion in the third quarter of 2011. Over the past four quarters the company has delivered an average surprise of 1.29%.

The company continued with its aggressive drilling and exploration strategy. TOTAL leveraged its strong financial position to make acquisitions and divested its less productive assets during the quarter to become more competitive.

TOTAL operates in more than 130 countries which provides a stable production stream, but also makes it vulnerable to exchange rate fluctuation, political turmoil and change in policies from the governments.

The incidents in the UK North Sea and Nigeria have taken a toll on the total hydrocarbon production of the company. Hydrocarbon production in the third quarter was 2,272 thousand barrels of oil equivalents per day, down 2% from the prior-year comparable period.

The new projects started by the company during the second half of 2012 is likely to have a positive impact on its production in the forthcoming years. At the same time weak demand from Europe due to the lingering debt crisis still remains a headwind.

Following the release of third quarter results, the Zacks Consensus Estimate for 2012 has gone up by 3.4% to $6.95 per share. Moreover, the Zacks Consensus Estimate of $7.02 per share for 2013 has also gone by 1.03%.

Other Stocks to Consider

TOTAL presently retains a Zacks #4 Rank (Sell). Other large companies operating in the oil & sector are BP Plc. ( BP ), Chevron Corporation ( CVX ) and Exxon Mobil Corporation ( XOM ). All these companies carry a Zacks #3 Rank (Hold).

BP PLC (BP): Free Stock Analysis Report

CHEVRON CORP (CVX): Free Stock Analysis Report

TOTAL FINA SA (TOT): Free Stock Analysis Report

EXXON MOBIL CRP (XOM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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