By Lynn Thomasson and Nikolai Gammeltoft
Politicians in Washington and cable TV pundits are fulminating about oil industry profits if the average price of a gallon of regular gas is $ 4 in the US is approaching Meanwhile wants to President Barack Obama pulling 46.2 billion dollars of tax breaks for oil and gas producers more than 10 years and instead invest in alternative energy. Time for investors to call energy stocks?
Not really, say equity analysts and investors. U.S. oil industry profits continue to expectations if the world economy recovers. On the basis of price-profit energy companies are trading at the lowest valuation of 10 broad sectors in the default & arms of 500-stock index. In other words, can the current stock prices did not fully reflect that the high-powered analysts see profits for the sector in 2011. The 41 Drillers, refiners and oil field service providers in the S & P 500 are projected to earn 134,8 billion dollars this year, up 41 percent from 2010, on the basis of analyst predictions issued in April.
Probably the sector earned $ 31 billion in the first quarter of this year, one for shot 41 percent from the year before, according to the Wall Street projections tracked by Bloomberg. Profit upgrades reduced industry valuations 11.7 times projected 2011 income, of 13.7 in March. "Multiples on energy stocks are very low, and the investment opportunity remains pretty well," says Brian Barish (screenplay), who oversees $ 8 billion, including Chevron (CVX) shares, as Chairman of the Denver-based Cambiar investors. His aggressive value Fund Cambiar beat 99 percent of her colleagues in the past year.
Civil strife in the Middle East and North Africa, combined with the 2012 predictions that will be the fastest u.s. economic growth in seven years, sent oil prices up to 35 percent in the past year, $ 103.88 per barrel on 10 may, even after a 15 percent dip in early May. With gasoline prices to 64 percent since August and the unemployment rate 1.1 percentage points below the 26-year high reached in 2009, industry profits are on a tear.
ExxonMobil (XOM) reported a profit of almost $ 11 billion in the first quarter of 2011, a 69 percent increase over the same period in 2010. Even so, ExxonMobil, the world's largest company by market value, trades 9.6 times projected 2011 income, less than the 23-year-old median of 15.5 based on reported results, according to data compiled by Bloomberg. Chevron, the second largest US energy company, trades at 8.2 times estimated earnings even after an advance 14 percent this year. The company beat analysts ' estimates first-quarter profit on 29 april; sales rose 25 percent, to $ 60.3 billion.
President Obama and Democrats in Congress say that the profit justifies ending tax breaks for oil companies. Obama 2012 budget would pull tax breaks for oil and gas producers to generate $ 18.3 billion in revenue over 10 years. Representative Edward j. Markey (D-mass.), the top-ranking Democrat on the House natural resources Committee, said "there is absolutely no reason to continue to subsidize the most profitable companies in the history of the world," in a declaration of 28 april. "What is good for the largest oil companies is not always what is good for the American taxpayer."
Oil executives say such criticism of the tax issue is misplaced. "We have a total of $ 59 billion in taxes paid in the last five years, and that is a significant part of government revenue, as well as more than we've earned by our US operations," says Alan Jeffers, a spokesman for ExxonMobil. "Any claim that we don't pay our fair share of taxes is incorrect." Chevron says lose the tax breaks would hurt global competitiveness of the industry. "Discriminatory taxes would the US-based energy companies at a competitive disadvantage around the world and discourage development of domestic oil and gas resources," says a spokesman for Chevron, Lloyd Avram.
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