At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
What's in your wallet?
Are you looking to make big money from Big Oil's latest bull run? Then look no further than Anadarko Petroleum (NYSE: APC). According to the analysts at CapitalOne, this stock's a bargain, and good for a 33% profit if it's worth a dime.
Anadarko announced yesterday that it will be holding its annual investor conference on March 13, but CapOne isn't waiting around for the details. In what's been described as a "valuation call," the banker announced it's going right ahead and advising investors to buy Anadarko stock today, ahead of the news. But did CapOne jump the gun?
Let's take a look at a few numbers, and find out:
|
Company | P/E Ratio | Forward P/E | Free Cash Flow | Net Cash (Debt) |
|---|---|---|---|---|
| Anadarko | negative | 17.8 | negative | ($13.7 billion) |
| Apache Corp (NYSE: APA) | 9.3 | 7.8 | $2.9 billion | ($6.9 billion) |
| Chesapeake Energy (NYSE: CHK) | 10.7 | 8.2 | negative | ($10.5 bllion) |
| Chevron (NYSE: CVX) | 8.2 | 8.2 | $14.6 billion | $9.9 billion |
| ConocoPhillips (NYSE: COP) | 8.6 | 8.7 | $6.4 billion | ($20.5 billion) |
Source: S&P Capital IQ.
Call me skeptical, call me a Fool, but the numbers I'm seeing here tell me that CapOne did indeed jump the gun on this morning's upgrade. More than that -- they tell me CapOne was probably wrong to do so. Because to be perfectly blunt, Anadarko doesn't stack up all that well to the competition. It's got the second heaviest debt load, for one thing, and its continuing negative free cash flow means that's not likely to change anytime soon.
Indeed, among the major natural gas players named above, Anadarko is the only one currently that's both losing money (as calculated under GAAP) and also burning cash (as calculated by... fact). Perennial cash-burner Chesapeake Energy is holding true to form, of course. But at least that company has the fig leaf of GAAP accounting to hide behind and support its argument that it's really a "profitable" company, no matter how much cash it wastes. Meanwhile, Apache, Chevron, and Conoco are each generating gobs of cash -- and Chevron has even managed to tuck some of that cash away for a rainy day.
Any bullpen in a storm
Granted, if Anadarko delivers on analysts' predicted profit this year, and turns its P/E ratio from negative to positive, that could make the stock look a bit less unattractive to investors. Maybe even "33%" less unattractive, as CapitalOne suggests.
But even so, it's going to be nearly two years before Anadarko can earn the $4.70 in fiscal 2013 earnings that Wall Street is looking for. Two years before the company might deserve the 17.8 forward P/E ratio that it's being credited with today. For a company that's only expected to grow earnings at 21% per year, on average, over the next five years (which five-year term includes the two-year-long march back to positive profits, I might add), that hardly seems a bargain.
Foolish takeaway
At Motley Fool CAPS, we've been tracking CapitalOne's oil-patch stock picks for nearly six years now, and this analyst has consistently rated as one of the weakest Wall Street players -- literally one of "Wall Street's Worst." I guess that explains why it's endorsing Anadarko today.
Underperforming analyst, overpriced stock -- it's a match made in heaven.
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