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Note: I use the Stock Selection Guide Software and its methodologies from the CSA to perform the bulk of my analysis on stocks. This is not a recommendation to buy a stock – it is my analysis only. Please do your own research.
After some good feedback over the past couple of weeks about the weekly stock analysis posts that I have been doing every Wednesday, I have decided to alter the format to be a bit easier to read. As you may or may not know, I use the Stock Selection Guide Software from the CSA to do my analysis. It is loosely based off off the investing methodology introduced by the NAIC some time ago. As such, I am going to provide links to the sheets that I create using the software which will show the numbers that I run. To be thorough, I will also include my comments and additional analysis that I have completed in the course of my research. This should give my readers a clear picture of my stance on the particular stock. Of course this is, and will always be, my own analysis and not intended to be a suggestion to buy the stock. Here is the analysis of the first stock I am doing in this format – Imperial Oil.
Company Profile:
Imperial Oil Limited is a Canada-based integrated oil company. It is active in all phases of the petroleum industry in Canada, including the exploration for, and production and sale of, crude oil and natural gas. It is producer of crude oil, natural gas liquids and natural gas, and a refiner and marketer of petroleum products. It is also supplier of petrochemicals. The Company’s operations are conducted through three main segments: natural resources (upstream), petroleum products (downstream) and chemicals.
Revenue and EPS Graph
Click to EnlargeSummary:
IMO’s Revenue growth has been very choppy over the past 10 years and has declined significantly in the past 2 years, continuing on this year with the past 3 quarters showing a decrease of 3.6%. This is concerning given the unprecedented growth the oil and gas industry has seen in the past few years. I have had to be conservative in my revenue growth estimate for IMO given this relatively poor performance. I have estimated revenue growth at 5% which means that revenues in 2011 are projected at $29,649 (m).
The earnings picture is a much more favorable, especially since 2002. Growth during this period was 26.9%. If it were not for the period from 1997 to 1999, the earnings picture would be spectacular. However, given the large number of investment choices in the oil and gas industry, I feel it is necessary to be quite strict in my criteria for constant earnings growth. In addition, I have difficulty with the concept of projecting earnings to grow at a faster rate than revenues. This fundamentally feels wrong. As such, I am estimating IMO to grow earnings at a rate of 5% over the next 5 years. My projected earnings per share amount in 2011 is $3.97.
Dividends
Click to EnlargeSummary:
Dividend growth has been consistent over the past 10 years. I view this as a positive sign as my focus is on stocks that consistently increase their dividends.
The current dividend yield of 0.69% is low compared to its 10 year historical average dividend yield of 2.0%. I want current yield to be higher than the 10 year average. In addition, the yield for IMO is significantly lower than the yield on the S&P 500 Index, which is currently at 2.00%. It would be more prudent to simply buy the index and get a higher yield than invest in IMO on its own.
Valuation
Click to EnlargeSummary:
The stock selection guide allows an investor to come up with a valuation range for the stock based on historical prices, dividend returns, historical share price returns, and risk. It does this through formula that determines an upside and downside price (return / risk) for the stock. My inputs for the stock are as follows:
Revenue Growth Rate: 5%
EPS Growth Rate: 5%
Projected Upside P/E: 17.0
Dividend Return: 2.0%
Provision for a decline in the current stock price: 20%
Based on these inputs and the analysis completed by the software, my buy zone for the stock is $41.64 to $49.84. Given the current share price of $51.27 on November 21, 2007, I do not consider IMO to be a buy.
Disclosure: The Dividend Guy does not own shares in IMO. This is my analysis of the stock and is not investment advice. Do your own research.
TDG: I like where you are going with your analysis. Unfortunately, the attachments are too small to read when you click on them. For a moment it will be large enough to read, then it shrinks to fit everything on one page. Is there an option that would leave it larger and let the viewer scroll?
Otherwise, your analysis looks great!
Best Wishes,
D4L
To D4L,
I think it’s that you are using Internet Explorer that has auto resize images, which shrinks it to fit on your screen. You should be able to hover over the image and an icon should pop up in the bottom right to allow you to show 100% image size.
If not, TDG would probably provide you with the direct link to images for your viewing pleasure.
-Derrick
Thanks Derrick – that is exactly what I would have said. I have tried to find the plugin that I have seen on some other blogs that when you click on the image it enlarges without opening a new window – it kind of grows if that makes any sense. Anyone have any suggestions?
The Dividend Guy
Derrick: Thanks, that took care of it. Great tip!
Best Wishes,
D4L
love me a toothsome, well-supported dividend, but i wouldn’t buy financials or banks on a dare. too many of these companies have generated the large, increasing dividend payouts you are screening for, with essentially a business model of “sell debt, issue proceeds as dividends” (REITs have plenty of this as well), and EVERY LAST ONE of them has lurking derivative risk. the latter is a much larger problem, for me; there is just no way to know when your bank is going to pull a “LTCM”. maybe a financial ETF or index, but putting 5% of your portfolio into one company in this sector strikes me as reckless. insurance companies might be an exception, having intrinsically more conservative business models and more legibility in their financial documents.
id rather see a 2% yield, with a payout ratio of less than 50%, a dividend-to-book of less than 10%, and a long-term trend of increasing book value per share. minerals, energy, industrials, chemicals, and pharma are chock full of companies where a 2% yield is strictly gravy.
good luck to you, hope your portfolio runs circles around mine… long as i beat my benchmark 🙂
MAXIDEX WARNING
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Two days later I was BLIND
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