TOTAL S.A. (ADR) (NYSE:TOT) is a European oil company with activities in exploration and production (upstream) and also the refining of petroleum (downstream) worldwide. The business produces around 85% of its revenue through the upstream industry. What is unique about this company is its remarkably small P/E ratio of 7.1, as well as its substantially high dividend yield of 6%. This possibly could direct someone to assume it will become more lucrative to buy shares in Total compared to Chevron Corporation (NYSE:CVX) or Exxon Mobil Corporation (NYSE:XOM), companies that have larger P/Es (8.7 and 9.2, respectively) and around 50% of Total’s dividend yield (3.1% and 2.6%, respectively). The previously mentioned numbers can make a person speculate why the vast majority of investors choose the two North American giants over Total.
A Growth Summary
TOTAL S.A. (ADR) (NYSE:TOT) is a value play while Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) possess substantial growth. Total has expanded its EPS (earnings per share) by just 7% since 2005 while Chevron and Exxon raised their EPS by 108% and 64%, respectively. That is the reason Total’s share price has dropped 23% following the end of 2005 while Chevron and Exxon have increased their share prices by 96% and 50%, respectively. Total has grown its dividend by 45% from 2005 while Chevron and Exxon have multiplied their dividend by 2 around the same period.
In addition, TOTAL S.A. (ADR) (NYSE:TOT) possesses a small net debt that happens to be around 4 times its per year revenue. This is just a bit above the financial debt of Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) (2 and 3 times their income per year, respectively).
Oil Reserves
While Chevron and Exxon Mobil Corporation (NYSE:XOM) replaced 112% and 119% of their reserves respectively, Total replaced just 93% of its oil reserves in 2012. Furthermore, Total possesses 13 years of established reserve life, which happens to be similar to Exxon (15 years) although less than 50 % of Chevron’s number (30 years).
TOTAL S.A. (ADR) (NYSE:TOT)’s approach is to enhance its production level by 3% on a yearly basis within the 2011-2015 period. The company can expect its 2013 production to become powered by the start-ups in 2012 as well as 2013, which includes Kashagan in Kazakhstan, Angola LNG, Anguille in Gabon, and also the expansion of OML in Nigeria.
The Bottom Line
TOTAL S.A. (ADR) (NYSE:TOT) has placed an objective to improve its day-to-day production from 2.4 to 3.0 million barrels/day within the following 5 years. Since the corporation has presently initiated the creation of all of the initiatives that will generate growth until 2015, it is extremely probable that the corporation is going to complete its target. In accordance with the evaluation of Total, every 10% increase in the upstream production, is going to increase its revenue by $1.5 billion, meaning that the mentioned achievement will probably increase its present revenue by around 25%. For Total, this is a substantial progress although yet not enough to outperform its two competitors.
TOTAL S.A. (ADR) (NYSE:TOT) continuously performs fairly well and increases its solid financial position. The ambitious exploration approach together with the purchase of new drilling licenses helps the business to improve its reserve base. Nevertheless, the business has been affected by the prolonged economic weakness in the European Union and also the predominant insecurity in the African continent. It is crucial to point out to investors that a considerable percentage of the company’s production originates from these areas.
Finally, Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) have displayed a far greater performance than Total regarding the increase of revenue and dividends in earlier times. As a result, I would suggest these two organizations instead of Total. Only when an investor is especially considering the dividend yield of the upcoming couple of years, Total could be the most suitable option for this investor, although the capital gain from Chevron and Exxon will probably surpass the entire return of Total.
Because the stock of TOTAL S.A. (ADR) (NYSE:TOT) moved to nowhere over the previous 4 years (trading somewhere between $42 and $65), I would advise to investors to wait for a short-term correction towards the support at $46. Only after that, Total is able to improve the substantial dividend yield with a considerable potential capital increase.
The article Is This European Oil Company Superior to Its American Competitors? originally appeared on Fool.com and is written by Marcus Vilkas.
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