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Total- Oil Firm Earns a "Strong Buy" Rating

Total S.A. (TOT) reported second-quarter results; net income of $2.9 billion came in on target. During the quarter, oil prices rose and natural gas prices fell vs. the previous quarter, observes Crista Huff, editor of Cabot Undervalued Stocks Advisor.

Total is a French multinational integrated energy company operating in over 130 countries. Total’s strengths are in the Middle East, Africa, North Sea and deep water. 

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Total operates the most powerful supercomputer within the energy sector, which can reduce geological risks, assist with ongoing projects, lower costs and help to optimize field operations. The company is increasing oil and gas production in both 2019 and 2020.

Total played a supporting role in the agreement by Occidental Petroleum (OXY) to acquire Anadarko Petroleum (APC) by purchasing African energy assets from Anadarko for $8.8 billion. CEO Patrick Pouyanne commented, “In fact … we have been looking at these assets more than a year”, which are expected to contribute immediate free cash flow for Total.

The company plans to sell $5 billion of assets in 2019-2020. As part of that goal, Total intends to divest several non-core assets in the U.K. to Petrogas NEO UK Ltd. The assets were acquired in Total’s March 2018 Maersk Oil merger, and will fetch $635 million.

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The company reported a successful second quarter in July. CEO Patrick Pouyanne commented, “adjusted net income increased by 5% compared to the previous quarter … and the return on equity remained above 11% ... debt-adjusted cash flow increased by 10%...”. Mr. Pouyanne expects to achieve higher refining margins in relation to new low-sulfur fuel rules being imposed by the International Maritime Organization.

Total’s pre-dividend breakeven is below $50 per barrel, while Brent crude averaged $69 per barrel during the quarter. First-half 2019 net income rose 54% vs. first-half 2018. Debt levels remain low.

Total has a target dividend increase of 10% over the 2018-2020 time period, and has thus far increased the dividend by 6.5%. Share repurchases totaled $760 million during the quarter, as part of a $5 billion repurchase goal during the 2018-2020 time period.

The share price came down in recent weeks due to a downturn in the broader stock market and fluctuations in oil and gas prices. Despite Total’s successful second quarter results, three of Total’s four major European competitors reported disappointing results, dragging TOT down with them.

TOT is an undervalued, large-cap growth & income stock with a large dividend yield. I love the earnings growth, value and dividend components of TOT, and the stock is low within its trading range. Take advantage of  the recent price pullback! 

I’m moving TOT from "Buy" to a "Strong Buy" recommendation.  The stock now provides a yield of 5.9%.

All types of stock investors (except perhaps short-term traders) stand to profit from new purchases of these shares.

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