On Aug 21, Zacks Investment Research downgraded major integrated oil and gas company, Statoil ASA (STO), to a Zacks Rank #4 (Sell).
Why the Downgrade?
On Jul 25, Norway-based Statoil reported second quarter 2013 adjusted earnings of 60 cents per ADR, lagging the Zacks Consensus Estimate of 65 cents. This was the company's second consecutive miss.
Results were dragged down by lower price realizations and weaker trading activity. Production volumes decreased 1% annually due to lower activity in the existing fields. Revenue also recorded a drop of 26% year over year.
Management is cautious about operational regularity and delays in other projects. Delay in the Norwegian field development and the company’s decision to postpone its investment decision on the Johan Castberg discovery also poses a concern.
On the back of weaker gas prices and the asset swap deal with German oil and gas outfit Wintershall – which is expected to affect volumes by 2% – Statoil has lowered its production guidance for 2013.
A higher capex and the Norwegian state’s concentrated ownership in the company significantly reduces the liquidity and attractiveness of the stock compared to its European peers.
Based on several such factors, the Zacks Consensus Estimate for the third quarter has moved down 5 cents (or 8.5%) to 54 cents over the last 60 days. The Zacks Consensus Estimate for the full year is currently pegged at $2.59, after moving down 15 cents (or 5.5%) in the same time frame.
Stocks That Warrant a Look
We expect Statoil to perform below its peers and industry levels in the coming months and see little reason for investors to own the stock. However, one can look at Range Resources Corp. (RRC), Magellan Midstream Partners LP (MMP) and Dril-Quip, Inc. (DRQ) as good buying opportunities. These stocks, sporting a Zacks Rank #1 (Strong Buy), offer tremendous value.
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