I've recently been trying to understand the concept of, and calculate, shareholder yield. I calculated for PXD that the price to free cash flow of PXD for 2010 and 2011 was roughly 20, but the most recent value when the stock was at $129 was about 15. Assuming that it the price to free cash flow returns to about 20, the stock
is headed to $172. This assumes that the price at Cushing stays around $95, and Brent stays somewhere
in the $105-$110 range, I guess. Has anyone else out there calculated such a ratio, and if so, what have
you concluded? Taking this idea a little further, PXD production seems to keep ramping up, so perhaps
the price will go higher assuming oil price stay in the same range.
What is the industry average for price x free cash flow? You are right to look beyond just p/e, since much of the cost is non-cash depreciation. If acctg depreciation is higher than replacement depreciation, your free cash flow is a good measure.