Newfield Exploration (OP/A): Continue to recommend due to improved growth visibility - Goldman Sachs - October 27, 2005
We continue to recommend shares of Newfield Exploration (rated OP/A) due to improved production growth visibility that we believe remains unrecognized. Newfield trades at a discounted valuation, not just to the E&P average but even relative to companies that have typically had less visible growth. We believe that Newfield deserves a slight premium to this group and see 35% upside to a $60 traditional peak value. Startups of deepwater projects in the Gulf of Mexico, North Sea and Malaysia, development drilling in the Rockies and Mid-Continent and more exploratory opportunities in Oklahoma's Woodford Shale and in the ultra deep shelf of the Gulf of Mexico provide catalysts for the stock in the next year. We believe energy equities have attractive risk/reward going into winter, especially for companies with natural gas production closer to East Texas and the Mid-Continent.
For more details on our views on Newfield, please see our October 5, 2005 report, "Growth visibility improved." Message 21769794
3Q 2005 ADJUSTED EPS IN-LINE WITH OUR ESTIMATE
Newfield reported 3Q 2005 adjusted EPS of $1.00, in-line with our estimate of $1.02 though below First Call consensus estimate of $1.08. Reported EPS was essentially zero inclusive of a $133 million after-tax hedging loss and a $5 million after-tax gain on the sale of a floating production facility. Gas production was higher than expected at 508.7 MMcf/d versus our 477.8 MMcf/d. This was offset by slightly lower-than-expected commodity prices. Total costs were generally in-line with our expectations. Net debt/tangible capital is at 27%.
UPDATED ESTIMATES
We have updated our 4Q and full-year 2005 estimates to $1.37 ($1.54 previously) and $3.10 ($4.34) respectively to reflect lower production and realized commodity prices. Our 2006 and 2007 estimates are now $7.23 ($7.26 previously) and $7.93 ($7.65 previously) respectively. Exhibit 1 shows our summary financial model for Newfield.
Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Brian Singer, Arjun Murti. |
