Imperial Oil Ltd (IMO, Financial) experienced a daily loss of -1.4%, but it has seen a 3-month gain of 22.4%. Its Earnings Per Share (EPS) stands at 6.96. This article aims to explore whether the stock is modestly undervalued and provide a comprehensive valuation analysis for potential investors.
Introducing Imperial Oil Ltd (IMO, Financial)
Imperial Oil is one of Canada's largest integrated oil companies, focusing on upstream operations, petroleum refining operations, and the marketing of petroleum products. As of 2020, its production averaged 398 thousand barrels of oil equivalent per day, with an estimated 5.2 billion boe of proved and probable crude oil and natural gas reserves. The company operates three refineries with a combined processing capacity of 421 mboe/d.
Imperial Oil's stock price is currently $59.16, while its fair value (GF Value) is $67.53, suggesting that the stock may be modestly undervalued. Let's delve deeper into the company's value with a detailed financial assessment.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Our valuation method indicates that Imperial Oil stock appears to be modestly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Therefore, if the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns.
Because Imperial Oil is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength of Imperial Oil
Investing in companies with poor financial strength carries a higher risk of permanent loss. Therefore, it's crucial to assess a company's financial strength before investing. One way to evaluate this is by looking at the cash-to-debt ratio and interest coverage. Imperial Oil has a cash-to-debt ratio of 0.56, ranking better than 51.41% of 1029 companies in the Oil & Gas industry. Overall, Imperial Oil's financial strength is rated 8 out of 10, indicating a strong financial condition.
Profitability and Growth of Imperial Oil
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Imperial Oil has been profitable 9 over the past 10 years, with a revenue of $37.90 billion and Earnings Per Share (EPS) of $6.96. Its operating margin is 13.84%, ranking better than 59.98% of 982 companies in the Oil & Gas industry. Overall, GuruFocus ranks Imperial Oil's profitability at 7 out of 10, indicating fair profitability.
Growth is a vital factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. Imperial Oil's 3-year average annual revenue growth is 28.5%, ranking better than 81.93% of 858 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 54%, ranking better than 85.04% of 822 companies in the Oil & Gas industry.
ROIC vs WACC Comparison
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Imperial Oil's ROIC was 16.6, while its WACC came in at 11.76.
Conclusion
In summary, the stock of Imperial Oil (IMO, Financial) appears to be modestly undervalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 85.04% of 822 companies in the Oil & Gas industry. To learn more about Imperial Oil stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
