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TOTAL S.A. (ADR) (TOT): Inexpensive Yet Overperforming

The Oil industry is booming again as WTI crude rose to a two week high in anticipation of an increase in demand for fuel due to better than expected U.S. employment gains. In this oil sector, TOTAL S.A. (ADR) (NYSE:TOT) appears to be a good option for investors for several reasons. Firstly, the company is highly undervalued compared to its peers. Secondly, the financial performance of the company is relatively strong in comparison to its major rivals in this industry. Lastly, major modernization and innovative projects are currently being undertaken by the company which will more likely boost its profit and its competitive advantage in the industry, thereby sustaining its growth.


Industry analysis

The chart below compares the stock prices of TOTAL S.A. (ADR) (NYSE:TOT) and its major rivals BP plc (ADR) (NYSE:BP) and Exxon Mobil Corporation (NYSE:XOM) in a one-year period. It can be clearly seen that Total has appreciated 14.37% relative to its major rivals, BP and Exxon Mobil, which garnered changes of 12.73% and 13.12%, respectively.

Recent modernization and sustainable projects

TOTAL S.A. (ADR) (NYSE:TOT) is currently undergoing several projects to position itself as one of the most competitive in the industry along with the goal of increasing its profits and market share. These, in turn, will more likely improve the market share of the company and its stock price.

One of these projects include the recently approved €1 billion modernization project for Antwerp, which is currently the company’s largest European refining and petrochemical platform. The company is also focusing on shale innovation projects in the U.S. through restoration of the Port Arthur steam cracker in Texas, and trying to boost its image by turning into brand agency to support its international goals and communication strategies.

U.S. charges settlement

The company recently announced that it has settled two of its charges in the United States by agreeing to pay a total of $398.2 million to the government. This amount includes the $245.2 million penalty for the violation of the Foreign Corrupt Practices Act (FCPA) and the $153 million penalty to the Securities and Exchange Commission.

In my opinion, this is a good step taken by TOTAL S.A. (ADR) (NYSE:TOT) to end these charges, which started in the early 2000’s. This settlement may have a short-term negative effect on the stock, but the long-term effect outweighs the former. This step will improve the sentiment in this stock ruling out the uncertainties caused by ongoing litigations.

Attractive valuation

The P/E ratio of the company stands at ’10.17’, which shows that the stock price is equally valued. On the other hand, P/B indicates that the stock price is discounted relative to the industry average of ‘2.49’, making it attractive to investors. Price to Earnings per Growth indicates the TOTAL S.A. (ADR) (NYSE:TOT) is currently trading at a premium as compared to the industry average. However, it is trading at a discount compared to major players in the industry.

Data Source: Yahoo Finance

The financial performance of the company is still in a stable position despite the fact that gross profit margins decreased in the first quarter of 2013 by 11% relative to same period last year. Its long-term Debt to Equity ratio is at 44.44% which is relatively at par with the industry’s 45.38%. The dividend yield of 4.3% is 21% higher than the industry average of 3.562% indicating the company’s ability to pay high annual return value in conjunction to the current interest rates.

Data Source: Yahoo Finance

The Earnings yield (shown in the chart below) is also higher at 9.71% relative to other major players in the industry which includes Ecopetrol (EC) and Occidental Petroleum Corporation (NYSE:OXY) which garnered changes of 8.73% and 5.83%, respectively. This is another major positive for the company.


I would recommend buying TOTAL S.A. (ADR) (NYSE:TOT). Reasons cited for this include attractive valuation level as seen in its P/E which is well discounted in comparison to the industry average. Moreover, the company shows outstanding financial performance as seen in its high earnings yield and high revenue growth, which outweighs the fact that its revenue dropped by 9.73% in the first quarter of this year. The future outlook of the company looks promising as it continuously embarks on several modernization and innovative projects such as the Antwerp refining and Port Arthur shale gas which can boost its profit and position the company as one of the most competitive company in the industry.

Awais Iqbal has no position in any stocks mentioned. The Motley Fool recommends Total SA. (ADR). Awais is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Total SA: Inexpensive yet Overperforming originally appeared on and is written by Awais Iqbal.

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