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Is It the Right Time to Bet on Energy Major Statoil (STO)?

Zacks Equity Research
Updated

Commodity prices have been moving up lately, thanks to a decline in U.S. oil inventory. It is accompanied by a weakening U.S. dollar, which has declined for the first time in the last five years.

The market has also witnessed a rise in energy demand and oil and gas companies are poised to benefit from the situation. One such company, which is also currently the investor favorite, is Statoil ASA STO. It is a Zacks Rank #1 (Strong Buy) stock holding immense potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Statoil – an energy company that explores for, produces, transports, refines and markets petroleum and petroleum-derived products, and other forms of energy in Norway and internationally – enjoys leading market position, have a global footprint, strong cash position and is large enough to stay strong even in the face of unfavorable events.

Per the federal government’s EIA report, crude inventories fell by 7.4 million barrels for the week ending Dec 29. At 138.8 million barrels, current Distillate fuel supplies (including diesel and heating oil) are 14.2% below the year-ago level. All these have led to increasing energy prices and that’s good news for producers. This calls for investing in a lucrative growth stock, which can help investors benefit the most from the current bullish trend. Statoil, with a Growth Score of A, ticks this box too.

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Our Growth Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with a Growth Score of A or B when combined with a favorable Zacks Rank offer the best investment opportunities in the growth investing space.

Is Statoil Really Beating the Market?

Statoil, which has ENI S.p.A. E and Chevron Corp. CVX as peers, has gained 22.3% in the last year compared with 12% growth of its industry.

While any stock can see a spike in price, it takes a real winner to consistently outperform the market. That is why looking at both short term as well as longer term price metrics — such as performance over the past three months or year -- and comparing these to an industry at large can be very useful. In the case of Statoil, the results are quite impressive as shown below:

Moreover, return on equity (ROE) for Statoil is 8.6%, higher than the industry’s 6.4%, reflecting the fact that it is efficient in using shareholders’ funds. Also, return on capital (ROC) of the company is 5%, higher than the industry’s 4.8%.

What Else Makes Statoil a Good Pick?

Positive earnings estimate revisions is the reason for a favorable rank. Over the last 60 days, two analysts have increased their estimates for 2017, while two have increased their projection for 2018. Consequently, the Zacks Consensus Estimate for 2017 has increased from $1.18 to $1.28 while that for the next year has increased from $1.06 to $1.22 in the same time frame.

In conclusion, we commend Statoil’s endeavors to improve recovery of resources in mature fields. The company has operations in all major hydrocarbon-producing regions of the world, with an emphasis on the Norwegian Continental Shelf (NCS). We believe that Statoil is well positioned to sustain its steady production growth over the next few years on the back of its large resource base at NCS.

If you are interested in the oil and energy space, we recommend another player that looks attractive at current levels. Royal Dutch Shell PLC RDS.A carries the same Zacks Rank as Statoil. The integrated oil and gas company’s earnings for the fourth quarter of 2017 are expected to grow 84.1% year over year. The company pulled off a positive earnings surprise of 18.1% in the third quarter of 2017.

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Chevron Corporation (CVX) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
Statoil ASA (STO) : Free Stock Analysis Report
 
ENI S.p.A. (E) : Free Stock Analysis Report
 
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Zacks Investment Research