Integrated oil and gas companies are generally much larger than Murphy Oil. We’d include BP plc (NYSE:BP), Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and Hess Corp. (NYSE:HES) – the first three of which all have market caps over $100 billion- as peers. Murphy turns out to be in the middle of the range formed by these companies in terms of forward P/Es, with Hess and Exxon Mobil sharing a forward earnings multiple of 11 while Chevron and BP trade at small discounts. Exxon Mobil reported a moderate increase in its net income in the fourth quarter of 2012 versus a year earlier. Chevron and Hess both saw a slight fall in revenue; while Chevron’s earnings were up in percentage terms we think that its gain is more likely to have been one-time or short-lived rather than a sign of continually strong growth. BP is still overcoming problems related to the Deepwater Horizon disaster, but analysts are expecting earnings to recover in the long term and the dividend yield is about 5%.
Sales at Murphy have been doing well, and at least so far the company has also been able to improve its margins. The valuation is cheap, but larger peers with more market leadership are as well and in some cases have even lower multiples. We think that investors should consider BP and Exxon Mobil out of this peer group, and possibly Murphy depending on how much weight they believe is appropriate for an insider buy.
Disclosure: I own no shares of any stocks mentioned in this article.