Burlington Resources Inc. (BR)                                                                 Zac Conley
Date:           ...
Company Summary
Burlington Resources Inc. is heavily concentrated in the natural gas area (69%), with additional, and smal...
Goldman Sachs Global Energy Conference. A panel will discuss the ability to sustain shareholder growth.
Even if no new fie...
I. Fundamental Valuation




Inputs:

    1.    EPS Forecasts and long-term growth rate (LTG) EPS is $4.00 and $3.91 with ...
II. Relative Valuation




Indicator                                                 Interpretation
P/E                 Bu...
III. Technical Analysis


Indicator                                                 Interpretation
Bollinger Bands     Bea...
IV. Earnings Analysis
                                              Earnings Surprises
                        Dec. 04    ...
V. Analysts’ Recommendations
                      Current                 1 Month Ago          2 Months Ago            1 ...
VI. Institutional Ownership




Over the last three months there have been twenty-five more new buyers for their stock. Th...
Bibliography


Website www.anadarko.com

Website www.br-inc.com/

Website www.br-inc.com/investor/investor_sec.asp

Websit...
Upcoming SlideShare
Loading in …5
×

Burlington Resources Inc. 2

1,139 views

Published on

  • Be the first to comment

  • Be the first to like this

Burlington Resources Inc. 2

  1. 1. Burlington Resources Inc. (BR) Zac Conley Date: Jan. 25th, 2005 Consensus Estimate 12/03A 12/04E 12/05E Sector: Oil & Gas EPS 3.88 4.00 3.91 Industry: Oil & Gas Producers P/E 11.29 10.94 11.91 Current Price: $43.77 Long Term Growth Rate: 8.10% 52 Wk Price Range: $26.33-46.41 Ratio Analysis Co. Indus. Sector SP500 Ave. Daily Vol: 2,570,360 P/E (TTM) 11.29 16.09 18.61 22.04 Beta: .54 P/S (TTM) 3.34 2.85 1.96 3.04 Market Cap ($million): 17,140 P/B (MRQ) 2.62 2.75 3.21 4.01 Shares Out (million): 391.5 ROA (TTM) 11.17 6.91 9.18 7.42 Inst. Hold %: 83% EBO Valuation $214.54 Div Yld: .78 Recommendation: Buy Total Debt/Equity: N/A Stop-loss Price: $35.00 Member S&P 500? Yes (.16%) Price 6-mo prob 12-mo prob Target Price $48.00 68% 79% Investment Thesis Summary • With their ability to replenish their reserves Fundamental Valuation: for the year, stability is there for the Bullish: With the industry ROE the price is near company. This should result in continued four times greater than original price. When rising stock price. using the S&P’s ROE of 13% we still get a • Burlington Resources is planning to valuation of nearly double the current price. repurchase $1 billion dollars worth of stock in the near future. Their confidence in their Relative Valuation: stock should also help drive up the price. Bullish: With all but one indicator pointing to • Their ability to increase their revenues in bullish, the stock seems cheap and low in risk. their crude oil branch has helped diversify and increase their reserve cash. Technical Analysis: Bearish: The graphs were, for the majority, • Increased revenues in sections other than bearish. Indicators suggest the stock price will natural gas should continue. Through this, drop in the near future. company strength should improve and drive the price upward. Earnings Analysis: • In comparison to the competition, Bearish: Analysts forecast earnings to drop in Burlington Resources seems to be a cheaper the coming quarters. Downward revisions also stock. Couple this with the stock buy back dominate. and price should be favorably reflected. • Fundamental valuation shows the stock is a Analyst Recommendations: very good value. When lowering the ROE Bullish: The average rating is at its lowest for from 26.33% (industry average) to 13% the year. From the last month there is an (S&P average) the stock is still priced at a additional buy and has two less holds. great value. Institutional Ownership: Bullish: Institutions hold 83% of the shares. This shows institutions want to hold their stock. In the last three months there have been more buyers than sellers. 1
  2. 2. Company Summary Burlington Resources Inc. is heavily concentrated in the natural gas area (69%), with additional, and smaller operations in natural gas liquids (17%), and crude oil (14%). Their major operations in North America are conducted in the US Gulf, up through the Rocky Mountains and also in parts of Canada. They also have international operations in Northwest Europe, North Africa, China and South America. These areas are operated, and ran by the five different divisions of Burlington Resources, Burlington Oil & Gas Company LP, The Louisiana Land and Exploration Company, Burlington Resources Canada and Affiliated companies. Burlington Resources has been very successful diversifying themselves by revenues within their division. Last year they relied on natural gas for 78% of their income, compared to just 69% of revenue this year. Although the percentage is down the gross revenue is up by over two hundred million dollars in natural gas. The reason for such diversification lies within the crude oil revenue section. Revenue in this area more than doubled in gross revenue and in percentages. Competition and Strategy Burlington Resources has three major competitors in Anadarko Petroleum Corp, British Petroleum and Devon Energy Corp. Anadarko Petroleum is the most direct competitor to Burlington Resources. They have fields in nearly all the same areas, and are involved in all three of Burlington Resources major sections, natural gas, natural gas liquids and crude oil. They have recently built a pipeline to British Columbia that sends approximately nine million cubic feet per day. On the other hand, Anadarko is finding it hard to finance their drilling expenses after their budget was made in November. Oil prices dipping have cut profits, while expenses rise. This could be an advantage for Burlington Resources due to their efficient nature. British Petroleum is the largest producer of natural gas, which makes them an immediate competitor to Burlington Resources. Mad Dog Co., a company British Petroleum has a 60% working interest in, just opened a new oil field in the Gulf of Mexico, just south of Louisiana. Although a new field is opening, this should not be a big threat since British Petroleum is roughly twenty-five times bigger than them and opening new fields is what they do. Another of the competitors, Devon Energy, has a similar revenue stream as Burlington Resources. The majority of their income comes from natural gas, and is also heavily based in the United States. Also, like British Petroleum, they have just launched a new field in the Gulf of Mexico named Red Hawk. This is not a sole ownership though, they have partnered with Kerr McGee Corp. to open this new field. Although other companies have opened fields, Burlington Resources is trying to stay efficient and make the most out of each project and activity. They have announced a one billion dollar stock repurchase, and have projected to have full reserve replacement. A representative from Burlington Resources also talked at the 2
  3. 3. Goldman Sachs Global Energy Conference. A panel will discuss the ability to sustain shareholder growth. Even if no new fields have recently been opened, their current fields are strong holds for their supply and give them a natural competitive advantage. Their success will depend on their ability to sustain shareholder growth and becoming more efficient within the company. Historical Revenue and Earnings: Historical Revenue Historical Earnings FY 12/04 FY 12/03 FY 12/02 FY 12/04 FY 12/03 FY 12/02 1st Quarter 1,308 1,128 683 .89 .81 .12 2nd Quarter 1,333 1,059 769 .96 .69 .42 3rd Quarter 1,419 1,059 630 1.00 .67 .20 4th Quarter 1,558 1,065 882 1.02 .98 .39 Total 5,618 4,311 2,964 3.87 3.15 1.13 In the last three years, Burlington Resources has shown consistent increases from year to year. Within the last year they have shown improvement from quarter to quarter. As far as the earnings go, Burlington Resources has also seen increases from year to year and increases in each quarter for the last year. 3
  4. 4. I. Fundamental Valuation Inputs: 1. EPS Forecasts and long-term growth rate (LTG) EPS is $4.00 and $3.91 with a growth rate of 8.10% 2. Book value per share derived from… 3. Discount rate: 6.06% 4. Dividend payout ratio 8.02% 5. Next fiscal year-end is 2005 6. Current fiscal month is 1 7. Target ROE=26.33% Output and Sensitivity Analysis: 1. Based on these parameters, a 12 year forecasting horizon and a 7 year growth period, the EBO valuation is $214.54 2. Changing the discount rate to 14% gives you a value of $44.09. This is the return you should expect on the stock. 3. Changing the growth rate to negative 210.5 and you will come close to the actual price of the stock. 4. Changing the industry ROE to thirteen percent gives you nearly double the actual price. This number is the ROE of the Standard and Poor’s 500. Using this gives you a more realistic interpretation of the stocks value because of the price per barrel of oil has increased by so much recently. 4
  5. 5. II. Relative Valuation Indicator Interpretation P/E Bullish: Relatively a low P/E compared to its competitors. In this case it means they have a cheap priced stock. PEG (P/E/G) Bullish: Their low PEG ratio tells us it is cheap for its growth rate and is undervalued. P/B Neutral: Burlington Resources’ P/B is average for the industry and thus gives no indication. Value (P/B/ROE) Bullish: The low Value indicates their stock is low in risk and is cheap. P/S Bullish: They have the highest P/S of their competitors telling us their profit margin is high, and is low in risk. Summary Nearly every indicator is bullish. Signs are pointing toward Burlington Resources having low risk and being priced cheaper than their competitors. 5
  6. 6. III. Technical Analysis Indicator Interpretation Bollinger Bands Bearish: The price is sloping downward. When coupled with a majority of other bearish signs, causes the Bollinger band to be bearish as well. Stochastics Bearish: %K is above the %D, but the gap is shrinking. Moving Averages Bearish: The price is above the moving average, but the gap is quickly decreasing. MACD Bullish: MACD is above the signal line and it is also above zero. Regression Bearish: The price is above the trend line, but is sloping downward. PriceROC Bearish: Price is below where it was 100 days ago, and it is trending downward. 6
  7. 7. IV. Earnings Analysis Earnings Surprises Dec. 04 Sep. 04 Jun. 04 Mar. 04 Dec. 03 (Last qtr) (2 qtrs prior) (3 qtrs prior) (4 qtrs prior) (5 qtrs prior) Estimate 1.14 .91 .81 .81 .54 Actual 1.16 .98 .96 .89 .58 Difference .02 .07 .15 .08 .04 Mean Earnings Estimates Mar. 05 Jun. 05 Dec. 05 Dec. 06 LT Growth This Quarter Next Quarter This Fiscal Year Next Fiscal Rate Year Earnings 1.00 .86 3.74 3.49 8.10 # Estimates 21 20 31 15 9 Earnings Per Share Estimates Revisions Summary Last Week Last 4 Weeks Revised Up Revised Down Revised Up Revised Down Quarter ending 03/05 0 8 1 7 Quarter ending 06/05 2 6 2 6 Year ending 12/05 1 18 2 19 Year ending 12/06 3 4 4 4 Over the last five quarters, Burlington Resources has seen an increase in earnings, and have also had five straight quarters with positive earnings surprises. This information should have helped the stock’s price increase during that period. However, earning estimates for the next two quarters are fourteen cents and twenty-eight cents lower than actual earnings last quarter. Couple this with the numerous amounts of downward revisions, and it seems to indicate the price is ready to fall in the future. 7
  8. 8. V. Analysts’ Recommendations Current 1 Month Ago 2 Months Ago 1 Year Ago Buy 10 9 10 7 Outperform 9 9 9 5 Hold 12 14 13 22 Underperform 0 0 0 1 Sell 0 0 0 0 No Opinion 0 0 0 0 Mean Rating 2.06 2.16 2.09 2.49 Burlington Resources’ mean rating is currently better now than it has been at any other time. In the last month there is one more buy recommendation and two less holds, showing signs of improvement. Analysts have not given them a sell recommendation in the last year, which is a good sign. Although, the most recommendations are in the hold category suggesting they are still not sure on the stock. 8
  9. 9. VI. Institutional Ownership Over the last three months there have been twenty-five more new buyers for their stock. This is a bullish sign, even though the amount of shares bought by institutions has decreased. Even with the .6% less shares held by institutions, the percent held is still over 80%. This change is so small, a bullish sign should still be taken from the information provided by the institutional ownership spreadsheet. 9
  10. 10. Bibliography Website www.anadarko.com Website www.br-inc.com/ Website www.br-inc.com/investor/investor_sec.asp Website www.devonenergy.com Website www.exxonmobil.com/corporate/ Website www.harrisdirect.com Website www.investors.reuters.com 10

×