Noble Energy (NBL): Multiple has expanded; additional exploration success needed - Goldman Sachs - 11/01/07
What's changed
Noble reported adjusted EPS of $1.17 versus First Call consensus of $1.23 and our $1.24. Total production was 1,239 MMcfe/d versus our 1,216 MMcfe/d estimate. Operating cash flow was $560 million versus our estimate of $540 million. The company expects its fourth quarter production to range from 1,158 MMcfe/d to 1,182 MMcfe/d, down temporarily due to downtime at the Equatorial Guinea LNG plant.
Implications
Noble has executed well across its asset base – in exploration, the US onshore and the US and international offshore. We believe exploration in Equatorial Guinea remains a catalyst for the stock, in the near term the Yolanda well on Block I, though with Noble shares’ outperformance expectations have increased. Noble has had significant multiple expansion in the last year. Going forward, we believe Apache has greater potential for multiple expansion based on a revaluation of its international assets.
Valuation
Noble trades at 6.2x 2008E EV/debt adjusted cash flow, versus 5.5x for Apache Corp, 5.7x for Newfield Exploration, 6.5x for Pioneer Natural Resources, 5.1x for Forest Oil and 4.5x for Talisman Energy. We see 6% upside to $81 12-month DCF-based target price for Noble versus 13% upside for E&P stocks. We continue to rate Noble Neutral relative to an Attractive coverage view as we see better catalysts at present among peers. Our 2007/2008 EPS is now $4.74/$5.43 from $4.76/$5.69.
Key risks
Commodity price volatility, drilling results, cost pressures and government pronouncements are the key risks. |
