Anadarko Petroleum Cp Message Board

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Gold/Mining/Energy : Anadarko Petroleum Cp

APC 72.77

+0.8%

Aug 8 5:00 PM EST

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From: Dennis Roth	5/4/2007 7:20:36 AM
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Valuation seems expensive given restructuring execution risk May 02, 2007 Goldman Sachs What's changed Anadarko reported adjusted EPS of $1.15 versus our estimate of $0.80 and the First Call consensus of $0.73. There were several special charges in the quarter which collectively reduced reported EPS to $0.23. Operationally, the quarterly slightly exceeded our estimates. Production was 653 MBOE/d versus our estimate of 634 MBOE/d. The key negative item in our view was the worse than expected outcome of production tax renegotiations with Algeria, due to which we are lowering our 2007-2010 EPS estimates. Implications We found Anadarko’s 1Q 2007 results directionally positive in terms of gaining confidence in the asset quality of the company’s retained portfolio of E&P assets. In particular, we viewed it favorably that management raised its production guidance from retained assets by about 15 MBOE/d for FY 2007. However, we continue to believe that Anadarko trades at too rich of a valuation relative to its large-cap E&P peers given the significant uncertainties that we believe will remain in investors’ minds regarding the company’s prospects until substantially all significant restructuring activity have been completed, which we do not expect until 1H 2008 at the earliest. Valuation At 5.3X 2008E EV/DACF, Anadarko trades at a similar valuation to EOG Resources (5.4X) and a slight premium to Devon Energy (4.9X) and Chesapeake Energy (5.0X). We believe this relative valuation is too favorable at this time given the above-average execution risk in Anadarko’s restructuring strategy. We see 14% downside for Anadarko shares to a $40 12-month target price, based on net asset value and cash flow analyses. We rate Anadarko Sell, relative to a Neutral coverage view. Key risks Key risks to our target price include commodity price volatility, restructuring execution risk, and drilling results in key fields.

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