Following Anadarko Petroleum Corporation’s (APC) third quarter earnings miss on November 1, 2010, analysts’ sentiments regarding the company’s future earnings remain mixed.
Positives in the quarter included encouraging sales volumes at the company’s major domestic onshore resource plays, specifically the Rocky Mountain region and the Southern and Appalachia region. Robust performance in the quarter led to the management raising the full-year 2010 sales volumes guidance to 233−236 MMBOE.
However, the quarterly earnings miss along with apprehensions about the increased liabilities related to the Gulf of Mexico oil spill continue to weaken analysts’ opinions. A clearer picture on Anadarko’s liabilities in the spill is still awaited. These factors have given way to a mixed opinion on the part of the analysts.
Earnings Review
Anadarko Petroleum Corp. posted net earnings from continuing operations of 21 cents per share for the third quarter, below the Zacks Consensus Estimate of 30 cents but significantly above the net loss of 11 cents reported in the same period last year. The year-over-year increase is driven by higher sales volumes.
Revenues of $2.55 billion in the quarter showed a negative surprise of 2.3% from the Zacks Consensus Estimate of $2.61 billion, while it dipped 23.7% year over year from $2.87 billion last year.
During the quarter, crude oil & condensate and NGL revenues improved 6.6% and 36.7%, respectively, and revenues from natural gas improved 31.8%. Liquids and gas revenues in the quarter improved largely due to higher hydrocarbon prices.
We have discussed the quarterly results at length here: Anadarko Lags the Zacks Consensus
Agreement of Estimates
The overall trend in annual estimates remains mixed, yet showing more downward revisions than upward. For 2010, 17 analysts covering the stock (out of 24) lowered estimates in the last 30 days, primarily due to increasing costs, uncertain commodity outlook and risks relating to the potential Macondo liability. Only 4 analysts raised estimates for 2010 in the 30-day period.
For 2011, in the last 30 days, 11 out of 24 analysts lowered their estimates while 10 analysts raised estimates.
Over the last seven days, 10 analysts cut estimates for 2010 while 2 raised estimates. Revision trends for 2011 showed 5 downside and 6 upside revisions.
Magnitude of Estimates
Given the number of negative revisions, earnings estimate for fiscal 2010 fell by 12 cents to $1.79 over the past month. Earnings estimates for fiscal 2011, in spite of 10 upward revisions, declined by 11 cents to $2.08. Over the past week as well, estimates declined by 9 cents for 2010 and 8 cents for 2011.
Maintain Neutral
The major positives for Anadarko Petroleum are its deep and diversified asset base, low-risk and predictable production profile, global business development approach and brilliant execution capability, which reflect visible upside over the medium-to-long term.
Anadarko has a proven track record of identifying and executing high-impact projects. With a global business development approach, the company leverages its core skills and infrastructure to discover and develop value-accretive world-class resources and to build an optimized global portfolio, while actively managing both surface and subsurface risks.
Additionally, Anadarko’s strong balance sheet, investment-grade rating and access to liquidity enable the company to pursue strategic and tactical growth policies.
During the third quarter, the company enhanced its already strong liquidity position by replacing its $1.3 billion credit facility with a $5.0 billion facility with a five-year term. Also, the company’s cash position at quarter-end remained strong at $4.2 billion. This financial stability enables the company to capitalize on the flexibility of its global portfolio.
On the negative side, Anadarko’s valuation continues to suffer based on the after-effects of the oil spill incident at the Macondo (APC – 25% interest) exploration well in the Gulf of Mexico. The resultant suspension of deepwater drilling in the Gulf of Mexico has hurt production volumes in the region. Also, uncertainty on Anadarko’s liability for the clean-up of the oil spill, as a 25% stake-holder, remains.
Though we believe Anadarko’s strong cash position along with its new $5 billion credit facility provide it enough flexibility to meet any future liabilities, we project limited growth for Anadarko shares until there is a resolution on the liabilities surrounding the oil spill.
We continue to maintain our Neutral recommendation on Anadarko shares for the long term as we believe the company is poised for a substantial growth ahead, balanced with the risks of liabilities associated with the oil spill incident. Our rating is also supported by the company’s current Zacks #3 Rank (Hold).
ANADARKO PETROL (APC): Free Stock Analysis Report
Zacks Investment Research
