EOG a Core Large-Cap E&P - Analyst Blog
We continue to see EOG Resources, Inc. (EOG) shares as a core holding in the large-cap exploration and production (E&P) space for the company's demonstrated ability to achieve consistent production growth, primarily through organic means.
EOG's strong positions in Texas Barnett Shale and North Dakota's Bakken plays provide it with a multi-year inventory of development drilling opportunities. EOG has a very strong organic production-growth profile, with volumes expected to increase by approximately 15% in 2008. We are keeping our recommendation, price objective and estimates unchanged at this stage.
Long-term production-growth visibility has significantly improved following recent discoveries, and the management is guiding towards annual growth of approximately 14% in the 2009-2010 period. Outside North America, EOG has taken modest but concrete steps toward international diversification, focusing on operations offshore Trinidad and in the U.K. North Sea.
The company has continually pushed field efficiencies higher, adding and refining new techniques to its drilling toolkit and anticipating cost pressures by boosting staff early and locking in materials costs. Finally, the company is in strong financial health, with current net debt-to-capitalization of approximately 12%.
EOG shares command a well deserved valuation premium to its peer group average. At its recent analyst meeting, the management announced four major new plays that provide for significant long-term production growth and reserve additions. Its cost and return metrics are one of the best in our coverage universe. Our unchanged $145 price objective is based on 2008 P/CF and EV/EBITDA multiples of 6.6x and 6.5x.
Altria Spin-Offs a Success - Analyst Blog
Altria Group, Inc. (MO) generates significant cash flow and the stock has a high dividend yield. However, the company is engaged in numerous tobacco liability suits. Several large punitive damage awards have been upheld by appellate courts, especially the $50 million judgment paid out in the Boeken case after the U.S. Supreme Court refused to hear it. The Hold rating is maintained.
Longer-term, the spin-offs of Kraft (KFT) and Philip Morris International (PM) should unlock shareholder value. The U.S. tobacco industry is one of the largest and most profitable markets in the world. With a stable of strong brands, an efficient distribution network, and a strong field sales force, Altria Group has the ability to leverage the company's resources across an array of tobacco products.
Altria's stock has traded in a P/E multiple range of 6 to 18 over the last 10 years. The stock has maintained a low P/E due to tobacco-related litigation issues, and has been pressured down to a single-digit P/E during times of court case losses. We expect Altria's stock to trade in a P/E multiple range of 12 to 16. The target price of $23 is 14 times 12 month trailing earnings.
Entergy Corp. Going Nuclear - Analyst Blog
Entergy Corp. (ETR) is shifting towards becoming a fundamentally strong electric energy utility with the separation of its nuclear business. Its core business shows strong earnings growth and cash flow generation by higher production with fewer outage days and higher power prices.
Favorable regulatory rate hikes, higher contract and market energy pricing, increased generation from the Palisades nuclear plant acquisition, a reasonable valuation and steady recovery from the hurricane damage of September 2007 will continue to deliver strong earnings and cash flow growth.
Furthermore, the company's share-repurchase program continues to boost EPS. Therefore, we reiterate our Buy recommendation on ETR with a six-month target price of $117. Price appreciation to our near-term valuation target, coupled with a quarterly cash dividend of $0.75 per share which appears sustainable and secure represents annualized total return potential of 24.7%.
Anticipated rate increases, a relatively strong balance sheet and decent earnings visibility at the Entergy Nuclear business are some of the company's attractive investment features. In addition to the approval of a revised rate settlement, the LPSC agreed to provide for rate recovery of the two supply plan contracts, once approved by the commission, through the recovery provision for new capacity in the FRP.
After 17 years of rate freeze in Texas, Entergy Texas reached a $59.5 million two-step base rate increase settlement with the broader segment of customers consisting of Entergy Texas' retail customers. At the same time, a competing settlement was introduced by the Texas Commission staff and three interveners. Hearing is underway on Entergy Texas settlement which began at the end of June 2008.
