Friday, 30 October 2015

Thoughts on some US earnings out today (Exxon, Chevron, Moody's)

Whilst it may not quite have been the flood of numbers seen on Wednesday and Thursday this week, Friday had some insightful earnings pronouncements.

In the large cap oil space, both Exxon and Chevron reported today.  I reviewed both stocks a quarter ago (link here) and since this point both have been locked together in share price terms (although Chevron offers the higher dividend yield):

Turning first to Exxon the inevitable first analytical stop is the sustainability of the dividend.  As I noted earlier on Twitter: 

No huge love for this morning despite the dividend coverage almost there. I still see value in the sector

Exxon's 3.5% dividend yield (and additional buyback) at current levels of cash flow generation is fairly safe.  

Otherwise the Exxon earnings were decidedly as expected: total year-on-year earnings went down due to the upstream division whilst downstream earnings went up a little.  

In the link above I noted more excitement three months ago in Chevron - and this remains the case today.  I found this macro-level oil market insight suitably provocative: 

'We are confident of a recovery in prices...just uncertain on the timing'

Elsewhere in the presentation the now obligatory sources and uses of cash slide shows an akin profile to the other large cap oil names i.e. there or thereabouts in terms of uses of cash (capex/dividends/buybacks) being covered by underlying cash flows and divestments.  With net debt less than one times ebitda I would still rate the current distributions (including a 4.9% dividend yield) as short-term sustainable.  

One of the more interesting charts in their presentation deck was this growth profile chart.  At the moment - in an epoch of falling capex and oil price concerns - little attention is paid to growth but like it or not depletion occurs and it was actually quite pleasant to see this sort of chart.  

Overall, is there value in Chevron shares?  Yes.  I am not surprised to see them up today and anticipate a US$100+ share price sooner rather than later. 

A final few thoughts.  I did a big piece on the rating agency Moody's a little over a year ago (link here) and observed a good business...but a valuation I could not get quite to work.  Today's quarterly update from the company (even when the FX factors are ironed out) indicated a dullness that smacks of tough comps: 

Perhaps then not too surprising that the shares have gone to sleep in the last year since I looked at the stock: 

I also note a nibbling down of certain aspects of the outlook statement (not for both Moody's Investor Services and Moody's Analytics for their non-US business interests) even though the broader numbers were reaffirmed.  

Still you are paid to wait (5% free cash flow yield) and at a current x14 EV/ebit prospective rating it is not super expensive.  Nevertheless am I very excited?  Not really.  I will keep it on my watch list but prefer to see the stock near its current 52 week low for another re-review. 

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