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Buys in Oil: Concho Resources (NYSE:CXO), Ensco (NYSE:ESV), Rowan Companies (NYSE:RDC)
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We look at Concho Resources, Inc. (NYSE:CXO), Ensco plc (NYSE:ESV), and Rowan Companies plc (NYSE:RDC), 3 companies getting a lot of attention at the moment, to assess which may provide the best value for investors to consider buying and which are over, under or fairly priced.
Rather than the usual Price to Earnings (P/E) multiple method, we feel the best way to assess which of Concho Resources (CXO), Ensco (ESV), Rowan Companies (RDC) is the best value currently is to use the PEG ratio (P/E to growth). This PEG multiple takes into account the expected long term growth in earnings of the companies rather than merely the growth for one earnings period ahead as forward P/E does.
As a rule of thumb, a stock with a PEG of between 0 and 1 is usually considered to be underpriced, between 1 and 2 to be at fair value and over 2 to be overpriced.
Concho Resources (NYSE:CXO) had a last closing stock price of $108.49 after moving 2.67% in trading with a trailing 12 month P/E multiple of 23.43 and an estimated forward P/E multiple of 53.55. Concho Resources (CXO) has an estimated 5 year annual growth of 13.93% and a PEG multiple of 1.68. Based on the PEG ratio of CXO being 1.68, we consider Concho Resources to likely be at fair value. [Trend Analysis]
Ensco (NYSE:ESV) had a last closing stock price of $30.27 after moving 5.77% in trading with a trailing 12 month P/E multiple of 14.01 and an estimated forward P/E multiple of 6.10. Ensco (ESV) has an estimated 5 year annual growth of 2.93% and a PEG multiple of 4.78. Based on the PEG ratio of ESV being 4.78, we consider Ensco to likely be overpriced. [Trend Analysis]
Rowan Companies (NYSE:RDC) had a last closing stock price of $22.11 after moving 1.33% in trading with a trailing 12 month P/E multiple of 10.73 and an estimated forward P/E multiple of 6.72. Rowan Companies (RDC) has an estimated 5 year annual growth of 17.69% and a PEG multiple of 0.61. Based on the PEG ratio of RDC being 0.61, we consider Rowan Companies to likely be underpriced. [Trend Analysis]
Based on the above, it would appear that Rowan Companies offers the best value, as it has the lowest PEG ratio of 0.61, when compared to the other stocks. This makes it appear less expensive due to having a lower stock price against current earnings and predicted growth in those earnings in the coming 5 years.
However, on an individual stock basis, the analysis concludes that Concho Resources (NYSE:CXO) is at fair value, Ensco (NYSE:ESV) is overpriced and Rowan Companies (NYSE:RDC) is underpriced.
