During earnings season, it is pretty common to notice a group of similar companies reporting earnings on or around the same date. Today I would like to focus on a group of one of my favorite kinds of investments: oil companies. On Wednesday three large oil companies report their earnings: Hess Corp. (NYSE:HES), Murphy Oil Corporation (NYSE:MUR), and Phillips 66 (NYSE:PSX). Let’s take a quick look at each of these, and we’ll decide which looks like the best value ahead of earnings, as well as what we should be paying extra attention to during the earnings calls.
Hess Corp. (NYSE:HES)
Hess derives the majority of its revenues from its marketing and refining activities, but most of the company’s profits come from the exploration & production segment. Unlike a lot of similar oil companies, Hess Corp. (NYSE:HES) is mainly a U.S. company, with 82% of its revenues coming domestically.
As far as valuation goes, Hess Corp. (NYSE:HES) trades for 11.6 times this year’s expected earnings of $6.31 per share. What stands out to me the most about Hess’ projected future performance is not the numbers themselves, but the uncertainty amongst analysts covering the company. For example, 2014 earnings estimates range from a low of $2.02 to a high of $8.15, an enormous variance. The company also pays a very low dividend yield of about 0.55%, which it has not raised in over a decade.
There are a few things to keep an eye on during Wednesday’s earnings report, aside from the numbers themselves. Pay attention to anything the company has to say about its efforts to de-risk its portfolio by asset sales, and any cost saving projections related to the company’s current production growth projects. As mentioned, the company’s earnings beyond this year are extremely uncertain, so any clarity (as long as it is of a positive nature) would be very well-received by the market.
Murphy Oil Corporation (NYSE:MUR)
Murphy has a similar revenue makeup to Hess Corp. (NYSE:HES), with most revenues coming from refining and marketing and most income coming from exploration and production. The company plans to spin off its retail gasoline business later this year into a new company called Murphy Oil Corporation (NYSE:MUR) USA, which operates almost 1,200 service stations, primarily located at Wal-Mart Stores, Inc. (NYSE:WMT) supercenters.
Murphy Oil Corporation (NYSE:MUR) looks a bit more expensive than Hess Corp. (NYSE:HES), trading for 12.2 times this year’s earnings, with a similar degree of uncertainty in regards to forward earnings. The company does may a much better dividend yield of about 1.9%, which has been raised every year. Also worth noting, Murphy has a more attractive balance sheet, which has under $1.2 billion in net debt (debt minus cash) as compared with about $6.7 billion for Hess. This more than justifies the slightly higher P/E, and is making Murphy seem like a slightly better value so far.
During the earnings call, I’m keeping my eye on any news related to the spinoff, as well as any clarity as to where the company sees its earnings next year. If all is going according to plan, this may not be a bad play to get into pre-spinoff.
Phillips 66 (NYSE:PSX)
Phillips 66 (NYSE:PSX) was spun off from ConocoPhillips last year, and represents the company’s former refining and marketing business. The company operates 11 refineries throughout the U.S. and markets its products through about 8,500 service stations in 49 states.