Should you buy Petrofac Limited (LON: PCF) today?
I'm always searching for shares that can help ordinary investors like you make money from the stock market.
So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today I am looking at Petrofac (LSE: PCF) to determine whether you should consider buying the shares at 1,488p.
I am assessing each company on several ratios:
Price/Earnings (P/E): Does the share look good value when compared against its competitors?
Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
Yield: Does the share provide a solid income for investors?
Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
|Stock||Price||3-yr EPS growth||Projected P/E||PEG||Yield||3-yr dividend growth||Dividend cover|
The consensus analyst estimate for next year's earnings per share is $2.03 (10% growth) and dividend per share is $0.70 (9% growth).
Trading on a projected P/E of 11, Petrofac appears to be much cheaper than its peers in the oil equipment services sector, which are currently trading on an average P/E of around 15.5.
Petrofac's P/E and double-digit growth rate give a PEG ratio of around 1.1, which implies the share is fairly priced for the near-term earnings growth the firm is expected to produce.
Petrofac supports a 2.9% dividend yield, which is above the sector average of 2.3%. Furthermore, Petrofac has a three-year compounded dividend growth rate of 45%, implying the yield will continue to stay above that of its peers.
Indeed, the dividend is nearly three times covered by earnings, giving Petrofac plenty of room for further payout growth.
Petrofac currently looks cheap compared to its peers, so is now the time to buy?
As I say, Petrofac currently looks cheap compared its peers in the oil services sector. However, I believe that the company does not deserve this low rating.
You see, as a supplier of support services for the oil industry, Petrofac experiences a fairly constant demand for its services due to the growing global demand for energy. Indeed, even in today's weak economic environment, Petrofac recently reported that revenues and profits grew 9% and 17% respectively during 2012.
That said, Petrofac's shares have fallen during the past few weeks as investors became worried about the company's growth slowing during 2013. Investors are also worried about the company's rising capital expenditure spending.
Nonetheless, Petrofac's management remains upbeat about the future, defending rising capex spending as part of its ten-year plan. In addition, management has reconfirmed the company remains on target to double its 2010 recurring earnings from service contracts by 2015.
Furthermore, Petrofac's order backlog remains strong and grew 9% during 2012 to $12 billion. I believe the company is also bidding on a further $3 billion of contracts, the results of which will be announced in the next few months.
So, after taking all that into account and factoring in Petrofac's current discount to peers, I believe now looks to be a good time to buy Petrofac at 1,488p.
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.
> Rupert does not own any share mentioned in this article.