Bear of the Day: Statoil (STO)

Norway has been very fortunate when it comes to natural resources. The country exploited vast North Sea oil deposits and has funded a number of programs in the country, while also establishing the Government Pension Fund which has grown into a massive investment vehicle with close to $1 trillion under management.

At the heart of this development is Statoil (STO), a partially state-owned owned Norwegian oil company which has roughly one-third of its total shares public, and the rest owned by the Norwegian Government. This company has grown into a juggernaut in the European oil market, and is now one of the largest oil firms in the world.

However, despite its size, STO has been hard hit by the recent oil crash too, as shares for the company have collapsed in the past few months. In fact, STO has fallen by 40% in the time frame, crashing far below what the broad energy sector (as represented by XLE) did in the same time frame as the sector fell about 20% overall.

It also doesn’t help that as oil priced crashed, the Norwegian currency took a big hit too. The currency has crumbled over 15% in the past three months, making it that much harder for U.S. investors to see gains in Norwegian stocks like Statoil.

But anytime an otherwise solid company collapses in a very short time frame such as what we have seen in Statoil, investors might think that a bargain opportunity is presenting itself to investors. After all, the forward PE is below nine and the company is still profitable. However, if investors look to recent earnings estimate revisions by analysts tracking the company, you can definitely come to the conclusion that we aren’t out of the woods just yet with STO.

Earnings Estimate Revisions

Recent earnings estimate revisions to STO’s stock have been universally negative, as not a single analyst for any of the time periods we study has moved their estimate higher in the past three months. Meanwhile, the revisions to the current year and next year time frames have been massive, pushing the consensus estimate sharply lower in the process.

The current year consensus has fallen from $2.45/share sixty days ago to just $2.05/share today. The cut for the next year figure has also been dramatic, moving from $2.54/share to $1.85/share in the same time frame. And if that wasn’t enough, the next year consensus of only the most recent estimates comes in at a shockingly low $1.21/share, less than half of what the consensus was just two months ago.



Bottom Line

Clearly, analysts aren’t too optimistic about Statoil’s near term future, and you can’t really blame them given the trend in oil prices, as well as the weakness in the krone. It appears as though oil prices will be in the doldrums for a bit, and thus so might Statoil shares as well.

For these reasons, it shouldn’t be too surprising to note that STO has received a Zacks Rank #5 (Strong Sell) and that we are looking for more underperformance from this company in the near term. Furthermore, the sector, international oil integrated, is ranked in the bottom 10% overall so there is little hope in this space right now, suggesting that investors should look elsewhere for exposure, at least until the oil crisis blows over .

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