Wednesday, July 9, 2014

Penn West Petroleum Ltd.

On my other blog I am today writing about possible cheap dividend stocks to buy continue...

I do not own this stock of Penn West Petroleum Ltd. (TSX-PWT, NYSE-PWE), but I used to. I bought this stock as Maximum Energy Trust (MXT.UN) in 1998. I sold this stock of Penn West in 2010 as it was changing to a corporation, but they are also getting back into exploration, rather than just selling oil from their wells. They also just reduced their dividends from $.15 per share per month to $.09 per share per month.

Dividends are not doing well. The Dividends on this stock have decreased by 25% per year over the past 5 years. Dividends have decreased every year since 2008, including in 2013. They so far have not decreased in 2014. However, if you are into dividend income like I am, you would like stocks that increase their dividends, not decrease them.

If you look at Dividend Payout Ratios using EPS you can see that they cannot afford to pay dividends. The company had an earnings loss in 2013 and one is also expected in 20014. Analysts do not expect that earnings in 2015 or 2016 will even come close to covering dividends. The DPR on CFPS is not as bad with the DPR for CFPS in 2014 at 47%.

The company uses Funds Flows to show dividends are affordable. However, the company is no longer an income trust and it will not be one again. They are a corporation and need to get to a place where the earnings can cover the dividends.

The total return over the past 5 and 10 years is a loss over the past 5 years at 4.78% per year and a gain over the past 10 years of 4.13% per year. The capital losses over the past 5 and 10 years are at 11.68% and 9.15% per year. The dividend portion of the total return is at 6.90% and 13.28% per year. Dividends are also now a lower at 5.62%.

The outstanding shares have increased by 4.8% and 27% per year over the past 10 years. Revenue is up but Revenue per Share is down over the past 5 and 10 years. Earnings are down over these periods. Cash Flow is up but Cash Flow per Share is down.

If you use the 5 year running averages, Revenue is up by 114% and 33% per year over the past 5 and 10 years. By the same measure, Revenue per Share is down by 3.5% and 1.3% per year. EPS using the 5 year running averages is down by 58% and 36% per year over the past 5 and 10 years.

The cash flow using the 5 year running average is up by 2.4% and 28% per year over the past 5 and 10 years. Cash Flow per Share by this measure is down by 14% and 5% per year over the same periods.

Some of the debt ratios are fine. The Liquidity Ratio is 0.57. When this value is less than 1.00, it means that current assets cannot cover current liabilities. If you add in cash flow after dividends it is better at 1.28, but this is still a low value. The Debt Ratio is quite good at 2.56 as is the Leverage and Debt/Equity Ratios at 1.64 and 0.64.

I get a Graham Price of $8.93. The 10 year low, median and high median Price/Graham Price Ratios are 0.76, 0.97 and 1.17. The current P/GP Ratio is 1.12 and this stock test suggests that the stock price is relatively reasonable. The current P/GP Ratio is based on a stock price of $9.97.

The 10 year Price/Book Value per Share Ratio is 1.15. The current P/B Ratio is 0.65 a value some 44% lower. This stock test suggests that the stock price is relatively cheap. The current P/B Ratio is based on a stock price of $9.97 and BVPS of $15.41. On an absolute basis, a P/B Ratio less than 1.00 says the stock price is cheap.

The 10 year Price/Cash Flow per Share Ratio is 5.83 and the current P/CF Ratio is 18% lower at 4.77. The P/CF Ratio is based on a stock price of $9.77 and CFPS of $2.09. This stock test suggests that the stock price is getting relatively cheap.

The 10 year Price/Sales Ratio is 2.84 and the current P/S Ratio is 2.06 a value some 27% lower. The P/S Ratio is based on current Revenue per Share of $4.84 and a stock price of $9.97. This stock test suggests that the stock price is relatively cheap.

When I look at analysts' recommendations, I find Buy, Hold and Reduce recommendations. The consensus recommendation would be a Hold. The 12 month stock price is $10.70. This implies total return from a stock price of $9.97 of 12.94% with 7.32% from capital gains and 5.62% from dividends. I do not think that the dividends are secure and I would think that this would be a very risky buy with not a great return in capital gains. That is, I do not think that the risk/reward balance is there.

The stock price would appear to rather cheap. However, I would not buy this company. Revenue, Earnings and Cash flows are all declining. See my spreadsheet at pwt.htm.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

It is the largest conventional oil and natural gas producing trust in North America. They operate only in Alberta. Its web site is here Penn West.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

4 comments:

Anonymous said...

Have you read what the CEO has said following each quarterly? Obviously not. Look at the netbacks, REDUCED DEBT, and asset sales of non-core assets. Oh, and listen to what Roberts has said about production.

SPBrunner said...

Yes, I understand my report does not flatter a stock you own. I still think that it is cheap for good reasons. People are allowed to have different opinions. That how investing works.

Anonymous said...

I deal in facts. As you said, you have opinions, and you know what they say about those?

By the way, I am long PWE and have made a significant amount of money holding these shares without selling a share.

SPBrunner said...

Sorry, but I deal in facts. I have spreadsheets on my companies and I talk about what my spreadsheets are tell me.