Deep Dive: These oil stocks are looking cheap as Exxon Mobil reportedly mulls a bid for Pioneer

A $60-billion takeout would be a 20% premium to Pioneer’s market value at the close on Oct. 5, according to FactSet. Below is a screen of energy stocks to see which ones might be valued (or undervalued) at similar levels. This can flag stocks for further research if you are considering individual play in the oil patch, or trying to identify other companies ripe for merger offers.

Read: Exxon near $60 billion deal to buy shale driller Pioneer Natural Resources: report

Shares of Pioneer Natural Resources Inc.
PXD,
+11.13%
closed at $214.96 on Thursday. The stock was up 9% in morning trading Friday, as investors anticipated a deal.

All valuations and dividend yields in this article are based on Thursday’s closing prices.

Pioneer’s stock was trading at 9.3 times the consensus earnings-per-share estimate of $23.24 for the next 12 months, among analysts polled by FactSet. The company pays a fixed quarterly dividend of $1.25 a share, plus a variable quarterly dividend, which most recently was 59 cents. The most recent combined quarterly dividend of $1.84 makes for an annualized dividend yield of 3.42%, however, the past four dividends combined have been $16.47, which is why FactSet calculates a dividend yield of 7.66%.

The S&P 500 energy sector trades for a weighted 11.1 times forward earnings estimates, while the full S&P 500 trades at a forward price-to-earnings ratio of 17.8.

Exxon Mobil Corp.’s
XOM,
-0.78%
stock closed at $108.99 Thursday. The shares were down 3% in morning trading Friday. The forward P/E for Exxon’s stock at Thursday’s close was 11.9 and its dividend yield was 3.34%.

Exxon is the largest U.S. oil producer. The company had $29.6 billion in cash and equivalents as of June 30, and its ratio of long-term debt to equity is 19%. Over the past four quarters through June, Exxon’s profit totaled $51.7 billion. During that period the company spent $17.9 billion on share buybacks, underscoring its financial flexibility.

Exxon is seeking to expand by picking up Pioneer’s prime drilling acreage in the Midland Basin, which is part of the Permian Basin in western Texas, according to the report in the Journal.

Energy stock screen

The S&P 500 energy sector is the cheapest of the benchmark index’s 11 sectors on a forward P/E basis. One way to play the space is the Energy Select SPDR ETF
XLE,
which holds all 23 stocks in the sector. But you may be curious about individual stocks, and here we screen them three ways.

For an expanded screen, we began with a list of 71 stocks in the S&P Composite 1500 Index’s energy sector. The S&P 1500 is made up of the S&P 500
SPX,
the S&P 400 Mid Cap Index
MID
and the S&P Small Cap 600 Index
SML.

Our first cut was to reduce the list to 64 companies whose stocks are listed on U.S. exchanges and covered by at least five analysts polled by FactSet.

Lowest P/E

Among the 64 stocks, these 10 had the lowest forward price-to-earnings ratios at Thursday’s close, according to FactSet.

Click on the tickers for more about each company or index.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

Highest dividend yields

A high dividend yield indicates a low share price. A very high yield could mean that investors don’t expect a company to maintain its dividend payout. It certainly means further research is needed if you are looking for a stock-market bargain.

Among the 64 energy companies these 10 have the highest dividend yields, according to FactSet:

Keep in mind that if you are selecting energy stocks in part based on dividend payouts, you need to do some reading to find out exactly what a company’s dividend policy is. Some companies, such as Williams Cos.
WMB,
+1.39%,
pay steady fixed dividends while others, such as Pioneer, pay variable dividends.

Most beloved energy stocks among analysts

Among our list of 64 energy companies, here are the 10 rated a buy or the equivalent by a majority of analysts that have the highest one-year upside potential implied by consensus price targets:

• Civitas Resources Inc.
  CIVI,
  +2.61%
  is the only company appearing on all three energy stock screen lists.

• ProPetro Holding Corp.
  PUMP,
  +2.73%
  appears on both the P/E list and the list of analysts’ favorite energy stocks. So does Vital Energy Inc.
  VTLE,
  +3.35%.

• Devon Energy appears on the dividend yield list and on the list of analysts’ favorite energy stocks
  DVN,
  +2.32%.

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