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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Noble Energy

September 10th 2010 Noble Energy
NYSE Symbol: NE
Industry: Oil drilling
Price as of 9/10: $34.86

The markets had a great July, awful August, and so far a good September. Luckily the economic data has improved modestly to add some support to the averages. The markets remain cheap, but they can remain cheap for a while. What's working best of late is dividend paying stocks. Juicy dividend stocks like Altria, Philip Morris, Verizon, A&T, and Kraft are all at or near 52 week highs. Except for Kraft, the other four have recently raised their dividends. This week we'll feature another dividend paying stock that got pummeled during the BP oil spill. The featured stock of the week is Noble Energy. Noble is the second largest oil driller that continues to execute well, but the drilling moratorium in the Gulf of Mexico is hurting earnings in the short term. Long term the world needs more oil and roughly half of all new oil and gas reserves are found in deep water. This is good news for the long term fundamentals of Noble Energy. Long term investors looking for a growth stock trading for less than 10 times reduced earnings, should seriously consider this oil stock.
The second quarter earnings for Noble were nothing to write home about. Noble's net income plummeted largely because the government imposed a moratorium on Gulf deepwater drilling after the massive oil spill. In the quarter that ended June 30, the Swiss offshore drilling services company reported earnings of $217.9 million, or 85 cents a share. That compared with net income of $391.8 million, or $1.49 a share, in the year-ago quarter. Revenue fell to $710 million from $898.9 million. Analysts surveyed by Thomson Reuters had predicted earnings of $1.05 a share on revenue of $771.2 million. Noble's second-quarter revenues declined due to a combination of factors, not the least of which was the government-ordered drilling limitations in the Gulf of Mexico, however, the company has moved quickly on a variety of fronts to protect their backlog and shareholder value.
Thanks to the BP oil spill, Noble's stock dropped 40% in little over a month, but has recently improved as investors warm up to this deep value stock. Currently Noble is trading for 8 times reduced 2010 earnings and 7.5 times next years' reduced earnings. Not bad especially when the moratorium is lifted and earning revisions should go higher. The stock also trades for 2.5 times sales and 1.2 times book value of $28.41 a share. One of Noble's biggest competitors Diamond Offshore trades for 2.3 times book value. It's not often you're able to buy an oil stock that is performing great trading just above book value. While other investors hem and haw about whether BP is a good buy, why not buy an oil company without any of the lawsuit concerns especially when earnings estimates can easily get revised upward when the moratorium is lifted and demand for oil revives. The analysts like Noble as well with price targets as high as $47 a share, 34% about the recent share price. Not a bad value.