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The Zacks Analyst Blog Highlights: Alibaba, Microsoft, Apple, ExxonMobil and Royal Dutch Shell

Zacks Equity Research

For Immediate Release

Chicago, IL – December 9, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Alibaba BABA, Microsoft MSFT, Apple Inc. AAPL, ExxonMobil XOM and Royal Dutch Shell RDS.A.

Here are highlights from Friday’s Analyst Blog:

It’s Official: Saudi Aramco to Become Biggest IPO Ever

Saudi Aramco priced its initial public offering of three billion shares at 32 riyals ($8.53 a share), the top end of the expected range, raising $25.6 billion to pull off the biggest stock market floatation ever. The oil and gas juggernaut, which is set to trade on the Riyadh stock market, beat the previous record held by Chinese e-commerce behemoth Alibaba, which raised $25 billion when it listed on the New York Stock Exchange in 2014. If underwriters exercise an option to sell more shares, the proceeds from the offering could be around $30 billion.

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Here’s everything you need to know about the Saudi Arabian energy giant in one place.

Business Overview

Saudi Arabian Oil Company (Saudi Aramco) is the world's largest integrated energy firm. On an average, the state-owned oil and gas producer churned out a whopping 10 million barrels of oil each day during the six months from January 2019 to June 2019. Saudi Aramco is also a refining juggernaut, with a gross refining capacity of 4.9 million barrels per day.

Financial Performance

The company recently published its first-ever half-year financial results. For the six months that ended Jun 30, Saudi Aramco reported a slight decline in profits due to lower oil prices but net income – at $46.9 billion – still eased past the $20 billion+ for the likes of Microsoft and Apple Inc. during the same period. The so-called ‘Big Oil’ companies like ExxonMobil and Royal Dutch Shell – all carrying a Zacks Rank #3 (Hold) – are further down the pecking order. Importantly, the state-run titan raked in an astounding $38 billion in free cash flow.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IPO Size

The company is targeting to sell 1.5% of its 200 billion shares on the local bourse at $8.53 apiece, which it says was oversubscribed 4.65 times. At that price, Saudi Aramco will be valued at a staggering $1.7 trillion but still below the $2 trillion level that Crown Prince Mohammed bin Salman was initially looking for. However, it will still be significantly higher than Microsoft or Apple – the only other firms ever to have topped $1 trillion. Saudi Aramco is expected to begin trading at the Tadawul stock exchange on Dec 12.

Key Risks

For a primarily oil and gas business facing a weak commodity market, as well as the controversial aspects of climate change, there are a number of risk factors.

As is the case with other companies involved in exploration and production, Saudi Aramco’s results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flow.

During the first half of 2019, the Damman-based entity paid over $46 billion in dividends to its shareholder – the Kingdom of Saudi Arabia – including a special dividend of $20 billion. There are certain apprehensions regarding Aramco's monster dividend payouts to the Saudi government, especially with little prospect of oil prices moving much beyond $60 per barrel.

The recent attack on Saudi Arabia’s oil installations have raised the risk quotient associated with onshore oil production. In September, unmanned aerial vehicles struck Saudi Aramco’s Abqaiq plant – a key crude processing facility – and the Khurais complex, which houses the kingdom’s second-largest oilfield.

Finally, there is the climate change debate. Saudi Aramco is faced with the challenge of producing the most oil in the world and yet not to be seen as one of the world's biggest evils. The firm, which claims to be ‘the cleanest major oil company’ on the back of zero gas flaring and sophisticated field technology, will have to deal with pressure from environmentalists to cut emissions and curb climate change.

Outlook

It’s quite clear that Aramco's half-yearly numbers are a testament to the company's unmatched scale and earnings prowess. Agreed, there are worries related to Aramco's dividend payouts to the Saudi government, the latest financial results certainly tell us how sustainable the company’s business actually is – even in the face of the ongoing commodity price uncertainty.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
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