Our first idea is an oil company that is expected to grow more than 13% this year and has a current annual dividend yield of 5.55%, paid quarterly. Our second recommendation is profit-taking due to a buyout.
Buy: Total S.A. (TOT)
From The Prudent Speculator
French energy giant Total S.A. (TOT) is one of the world’s largest integrated oil and gas companies, with operations in exploration & production, refining & marketing, and chemicals. In Q3, TOT earned an adjusted $1.13 per share, ahead of the $1.02 consensus estimate. Despite an 18% dip in the Brent crude price over the past year and a 55% plunge in spot gas prices in Europe and Asia, volume growth was 8% due to strong results in the integrated gas and downstream businesses, while cost controls kept the breakeven production price manageable.
Total expects to produce 3 million barrels per day of oil equivalent in Q3, with production growth achieving 9% for the full year. CFO Jean-Pierre Sbraire said, “Total’s integrated model is working well, and our efforts to reduce breakeven and high-grade the portfolio are paying off. Despite weaker oil and gas prices this year, we increased cash flow generation from our diversified portfolio. We’re on track to grow cash flow over the coming years. We are disciplined in our capital investments, including net acquisitions. The balance sheet is strong, and we are committed to returning value to our shareholders.”
The company expects to complete its $5 billion share repurchase program next year and we like that Total’s production costs are meaningfully lower than most of its large integrated peers and that those costs should continue to drop over the next few years. Respective consensus adjusted EPS estimates (in U.S. dollars) for 2020 and 2021 currently reside at $5.19 and $5.49, up from $5.05 in 2018.
John Buckingham, The Prudent Speculator, www.theprudentspeculator.com, 877-817-4394, November 2019