This morning I received a lot of email alerts for EOG from my broker. Perhaps it is a good time for me to focus on this company today.
Note: I assume that reader does have access to Google finance or other finance media to look up company profiles and financial data.
EOG Resources, Inc. (EOG)
(1) Return on Equity (RoE)
Sales have been disappointing for 2009; it reverted to 2006 level while the net income was even worst – about the same as 2003-04 level. Much worst is the earnings per share (EPS) . It has been diluting shareholders ownership since 2002.
The results are much better if you were to exclude 2009 results. The performance for the past 10 years as well as the most recent 5 years have been superior – averaging around 20 percent.
(2) Intrinsic Value
Book value has been increasing at the rate of 20.9 percent in the last 10 years. The company earns 20 percent on equity. Using my discounted cash flow model I placed the intrinsic value for EOG at 201. That means I would buy the company stock whenever the price is below 120.7. The price as of April 6 is $97.
(3) Relative to Market
EOG market capitalization at the end of 2009 is about equal to 2007 level. While its revenue and net income are much lower; the company earned a lot less in 2009 compared to 2007 and close to the earnings in 2004. Outstanding shares have been increasing since 2002 from 229 million shares to 252 million shares in 2009. Book value has been increasing steadily from 2000 at 1.3 billion to 9.9 billion in 2009. Quick ratio seems to be improving since 2007 at a low of 0.88 to what is now 1.37.
In the last 10 years, the prices of EOG have been hovering in the range from 25.8 to as high as 145 per share; putting the market value of the company at a peak of 36.1 billion in 2008. Since then the market cap has gone down, trading in a range from 11billion to 25.6 billion for 2009. It is amazing the range that EOG stocks trades for: in 2008 the range was 13.5 billion to 36.1 billion. Interestingly, EOG net current asset at the end of 2009 was 24.5 billion; if you were diligent you could have purchase the stock for less than half (11/24.5) of its net current assets (cash, short term investments, receivables, and inventory). What a deal!
(4) Ethical Issues
I don’t like to see the Chairman and CEO, Mark G. Papa being the same person. The board is annually elected so I can over look this point. They seem to have a policy in place for related party transaction. I also get very uneasy when it comes to executives pay. EOG pays the Chairman and CEO 7.9, 13 and 23.4 million for 2006, 2007 and 2008, respectively. That is a lot of money in relative to other executives’ pay. The net income of the company drop 13 percent in 2007 but Papa’s pay increased 64 percent; go figured! Who do you think the compensation committee works for… the shareholders? You wish.
Even though EOG has issues in this area, their overall corporate governance is good enough to pass.
This analysis was done a few months ago; the recent buzz expedited this post. I did purchase this stock for my portfolio a while back.