Friday Integrated Wrap-Up: HFC Soars, Earnings from CVX

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Integrated oil stocks underperformed the S&P 500 index -1.02% to -0.16%.  Leaders today included HollyFrontier Corp. (NYSE: HFC) and China Petroleum & Chemical Corp. (NYSE: SNP). These stocks rose 2.94% and 1.60%, on volumes of 2.88M and 114.00K, respectively.  Laggards included Chevron (NYSE: CVX), which reported earnings, and BP (NYSE: BP). These stocks fell 2.47% and 2.39% on volumes of 10.43M and 8.76M, respectively.

Sector-wide news highlighted traders selling crude and buying gasoline; a 2012 oil & gas capital expenditure outlook that projected spending increases of 13%; and a commentary of the quiet rallying of the world's three largest integrated oil companies.

HollyFrontier saw its shares rise today without any major news releases.  It seems the street may be catching on to the company's excellent financial health and relatively low valuations.  Buy-and-hold investors should see tremendous upside with this security.  More specifically, HollyFrontier's P/E is at 5.56 (vs. a 10.15 industry average), its 5-year expected PEG is 0.15 (vs. a 0.74 industry average), its operating margin is an impressive 11.20% (vs. a 3.09% industry average), and its P/B sits at 1.19.  Because HollyFrontier's model is heavily tilted toward the refining side (it has a small marketing division) margins are of key importance.  

As was already mentioned, HollyFrontier's operating margin is 11.20% and its net profit margin is 9.4%.  These impressive figures are further bolstered by the company's 24.49% ROE, and 24.5% retained equity, which has helped the company accumulate $1.72B in cash.  If one factors in HollyFrontier's remaining assets, its total current assets sit at $4.38B.  With only $2.38B in current liabilities and $1.23B in long-term debt, HollyFrontier's cash position and valuations look very Buffett-esque.  Some of the risks that come along with refining stocks are the enormous operating costs, but as has been demonstrated, HollyFrontier's solid management has stockpiled enough cash to fund significant future operations.  The company's $350M share buyback plan announced at the beginning of this month should sit well with shareholders as well.

Chevron announced earnings of $2.58 per share, which missed the $2.84 consensus from 20 analysts covering the company for a negative earnings surprise of 0.264, or 9.28%.  Profits slid on a 3% refinery decline.  I hold the opinion, however, that today's sell-off should be deemed as unimportant by shareholders.  Although this quarter's earnings were just off the mark, YoY comparisons demonstrate how efficient Chevron was throughout the whole year.  More precisely, Chevron earned $26.9 billion, or $13.44 per share, compared with $19 billion, or $9.48 per share in 2010. Further, annual revenue increased 23.3 percent to $253.7 billion.  

To add to YoY comparisons, CEO John Watson stated that Chevron is looking to make acquisitions with its $10B in cash earlier today.  With an acquisition favored over share buybacks, future production and earnings should continue to provide the results shareholders are used to.  After all, Chevron was able to provide positive earnings surprises in every other quarter last year.  The average positive earnings surprise was 5.34%.  Everything considered, Chevron's alluring fundamentals (7.72 P/E, 0.92 P/S, 11.79% profit margin, 24.20% ROE, and $20.34B total cash (MRQ) to $9.74B total debt) still have a lot to offer buy-and-hold investors.

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Source: http://beta.fool.com/maxwellkirchhoff/2012/01/27/friday-integrated-wrap-hfc-soars-earnings-cvx/1359/

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