A Quick Look at the Nexen Situation

With shares of Nexen (NYSE:NXY) trading at around $27.42, is NXY an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Oil Barrels 640pxDon’t get too excited. This stock isn’t going anywhere significant in the near future. Only day traders will enjoy throwing this back and forth for some miniscule gains. That being the case, this isn’t about whether or not Nexen is a good opportunity. It’s more about taking a look at the current situation as well as the company’s numbers versus its acquirer’s numbers. This could potentially lead you to taking a look at CNOOC Ltd. (NYSE:CEO). On the other hand, it might also lead you to steer clear of CNOOC.

Nexen is a Canadian energy producer that explores for, develops, and produces oil and natural gas from conventional sources. Since this a Canadian company that is being acquired by a Chinese company, you might be wondering why the Committee on Foreign Investments in the United States had to approve the deal. It’s because of Nexen’s Gulf of Mexico oil and gas operations. A $15.1 billion takeover bid was approved by Canada back in December. Britain and the European Union also approved the deal. Now that CFIUS gave the nod, the deal is expected to go through during the week of February 25.

Let’s take a look at some numbers…

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Nexen is normal, and the balance sheet is in negative territory. Cash flow is good. CNOOC is stronger in every area.  

Debt-To-Equity

Cash

Long-Term Debt

NXY

0.48

$1.91 Billion

$4.32 Billion

SD

1.02

$673.68 Million

$4.31 Billion

CEO

0.19

$16.99 Billion

$8.77 Billion

 

T = Technicals on the Stock Chart Are Strong   

As stated earlier, you’re not going to see much change in the stock price from here, but we can take a look back. Nexen has outperformed CNOOC and SandRidge Energy (NYSE:SD) over the past three years. CNOOC yields 1.70 percent. Nexen yields 0.70 percent.

1 Month

Year-To-Date

1 Year

3 Year

NXY

1.52%

1.78%

49.02%

25.84%

SD

-14.21%

-7.32%

-24.45%

-30.52%

CEO

-3.81%

-8.03%

-8.69%

41.64%

 

At $27.42, Nexen is currently trading above all its averages.

50-Day SMA

26.50

100-Day SMA

25.72

200-Day SMA

22.93

 

E = Earnings Have Been Inconsistent          

Nexen hasn’t showed consistent earnings growth on an annual basis, but revenue has been impressive over the past few years.

2007

2008

2009

2010

2011

Revenue ($)in billions

5.23

7.01

4.31

5.25

6.24

Diluted EPS ($)

1.89

3.04

0.97

2.20

1.24

 

When we look at the last quarter on a year-over-year basis, we see flat revenue and a decline in earnings.  

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

1.50

1.70

1.75

1.76

1.50

Diluted EPS ($)

0.32

0.08

0.32

0.19

0.11

 

Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Some investors have pointed out that this deal could lead to more deals in Canada’s oil sands sector. However, Prime Minister Stephen Harper shot down that idea in an instant, stating that more foreign takeovers were extremely unlikely.

Conclusion

Nexen is a solid company with strong potential, but as you might have guessed, Nexen is a WAIT AND SEE. Unless you’re trading for fractions of pennies, this isn’t the place to be. CNOOC, on the other hand, might be worth some due diligence.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.