Refiners are no better off: Valero Energy Corp. (NYSE: VLO) is down -7.7% in the past month, Marathon Petroleum Corp. (NYSE: MPC) is down about -9.8%, while Tesoro Corp. (NYSE: TSO) is up a bare 0.4%. Refiners have been surviving off the wide differential between WTI and Brent crudes and as the differential narrows, profits are harder to come by.

For the integrated oil companies, the price of crude has been the determining factor in a company’s profit picture: the higher the price, the bigger the profit. That makes sense. For the services company, higher prices typically mean more work as producers want to get more oil to sell.

Because crude prices are at a seven-month low now, we thought it would be interesting to look for value in some of the big oil stocks. After all, low crude prices mean share sell-offs, so there ought to be some value left on the table.

With the exceptions of Exxon and Chevron, all the companies we looked at have implied gains exceeding 30% if analysts have gotten target prices right. That’s some pretty good value, but we thought we’d try to handicap the race a bit more closely.

Exxon Mobil Corp. (NYSE: XOM) traded at $82.21 and has a market value of $383 billion. The consensus target price from Thomson Reuters is $94.53 and the 52-week range is $67.03 to $87.94. Exxon has a dividend yield of 2.8%. The implied upside to the consensus target is 15%, but we would note that the target is above the 52-week high.

Chevron Corp. (NYSE: CVX) traded at $99.71 and has a market value of $196 billion. The consensus target price from Thomson Reuters is $124.88 and the 52-week range is $86.68 to $112.28. Chevron has a dividend yield of 3.7%. The implied upside to the consensus target is 25%, but we would note again that the target is above the 52-week high.

BP plc (NYSE: BP) traded at $38.26 and has a market value of $121 billion. The consensus target price from Thomson Reuters is $53.25 and the 52-week range is $33.62 to $48.34. BP has a dividend yield of 5.2%. The implied upside to the consensus target is 39%, but we would note again that the target is above the 52-week high.

Schlumberger Ltd. (NYSE: SLB) traded at $67.47 and has a market value of $89 billion. The consensus target price from Thomson Reuters is $89.20 and the 52-week range is $54.79 to $95.53. Schlumberger has a dividend yield of 1.7%. The implied upside to the consensus target is 32%, and the target price is lower than the 52-week high.

Halliburton Co. (NYSE: HAL) traded at $31.40 and has a market value of about $29 billion. The consensus target price from Thomson Reuters is $47.28 and the 52-week range is $27.21 to $57.77. Halliburton has a dividend yield of 1.2%. The implied upside to the consensus target is 51%, and again the target price is lower than the 52-week high.

Baker Hughes Inc. (NYSE: BHI) traded at $42.20 and has a market value of about $18 billion. The consensus target price from Thomson Reuters is $56.33 and the 52-week range is $39.40 to $81.00. Baker Hughes has a dividend yield of 1.5%. The implied upside to the consensus target is 33%, and again the target price is well below the 52-week high.

Valero Energy Co. (NYSE: VLO) traded at $22.17 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $30.15 and the 52-week range is $16.40 to $28.68. Valero has a dividend yield of 2.8%. The implied upside to the consensus target is 36%, and again the target price is above the 52-week high.

Marathon Petroleum Corp. (NYSE: MPC) traded at $36.38 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $52.50 and the 52-week range is $26.35 to $47.43. Marathon has a dividend yield of 2.9%. The implied upside to the consensus target is 44%, and again the target price is above the 52-week high.

Tesoro Corp. (NYSE: TSO) traded at $23.49 and has a market value of about $3 billion. The consensus target price from Thomson Reuters is $31.36 and the 52-week range is $17.43 to $30.15. Tesoro does not pay a dividend. The implied upside to the consensus target is 34%, and again the target price is above the 52-week high.

For comparison, The SPDR S&P Oil & Gas Exploration and Production ETF (AMEX: XOP) traded at $50.45 in a 52-week range of $37.67 to $65.58. That’s about 30% below the 52-week high. The Market Vectors Oil Services ETF (AMEX: OIH) traded at $37.47 in a 52-week range of $35.32 to $45.14, again about 30% below the 52-week high.

Target prices for the large integrated oil companies are above 52-week highs, as are target prices for the refiners. Unless the price of crude rises sharply, the targets are out of reach for the integrated companies. For refiners, they’re whipsawed if prices for WTI open a bigger gap versus Brent or if WTI rise and Brent falls. No chance at those targets either way.

Targets for the services companies are lower than 52-week highs, which improves the chances of hitting those targets. Schlumberger, the largest of the services companies, and Baker Hughes both look appear to have the best chance to boost their share prices.

Paul Ausick

• Finding, development, and acquisition (FD&A) costs are rising.
• Reserves are growing.
• Proved, developed reserves are shrinking.
• Reserve additions are not well matched to production.
• Liquids are in every E&P company’s sights.

To even out the changes a bit, Fitch computed a three-year average as well as a year-over-year average change.

FD&A costs for the entire group of companies fell by an average of -14% over three years, but the variation was large. The three-year average cost of a barrel in 2008 was $20.76, falling to $16.46 in 2011. Exxon Mobil Corp. (NYSE: XOM) posted an increase of 45% in FD&A costs over three years, while Chevron Corp. (NYSE: CVX) lowered its costs by -41% and ConocoPhillips lowered its costs by -36%. Occidental Petroleum Corp. (NYSE: OXY) showed a 1% increase in FD&A costs over the three years and Hess Corp. (NYSE: HES) paid 60% more per barrel in FD&A costs. FD&A costs for SandRidge Energy Corp. (NYSE: SD) rose 42%, while the largest drop in costs came at Range Resources Inc. (NYSE: RRC), at -65%.

Total proved reserves posted median gains of 4.8% year-over-year and 24% since 2008. Some of the largest reserves gains came from additions of natural gas, which drove up the reserve equivalent barrels count, but weighed on valuations due to the low prices for natural gas. Among the bigger companies, Exxon increased its reserves by 14.1% over the three-year span, while Chevron’s reserves grew by just 0.4% and Conoco’s fell by -18%.

Proved, developed reserves declined for all the companies in the sample by -3.5% over the three-year period. Fitch defined proved, developed reserves as “proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods, or through relatively minor expenditures.” Essentially that means that the companies are increasing production from existing wells and driving down the amount that’s left to get out of a producing well. As a percentage of total reserves, proved, developed reserves rose the most at Marathon Oil Corp. (NYSE: MRO), a total of 8% in the three-year period. Proved, developed reserves fell the most at Plains Exploration & Production Co. (NYSE: PXP), a total of -16.4%.

The mismatch between production and reserves replacement is described as “lumpy” by Fitch. The problem is mainly one of timing. A project with a long startup cycle, like Chevron’s liquefied natural gas project offshore of Australia, delays reserves booking well past the time the company spent billions of dollars to develop the project. This effect will become a bigger issue as new projects are developed in ultra-deepwater and other difficult environments by smaller companies.

Finally, the push to develop liquids production has been well-documented over the past couple of years. With natural gas prices near historic lows, liquids development is critically important to companies that once focussed almost exclusively on dry natural gas. The largest three-year average gain in liquids reserves was 40% at SandRidge, followed by 12% gains at Pioneer Natural Resources Co. (NYSE: PXD) and Newfield Exploration Co. (NYSE: NFX). Chesapeake Energy Corp. (NYSE: CHK) grew its liquids reserves by 11% over the three years.

Fitch notes that what it calls ‘efficiency’ — which is essentially the sum of all the factors it looked at in this operational review — “helps determine the relative credit quality and competitiveness of a firm when indexed against its peers … [B]eing a low-cost, efficient producer remains a key credit protection in the event of lower oil prices.”

The full report from FitchRatings is available here.

Paul Ausick

Adtran Inc. (NASDAQ: ADTN) Reiterated Buy and $39 target at Argus.

Apple Inc. (NASDAQ: AAPL) Maintained Outperform but cut estimates at Credit Suisse (full details).

Arena Pharmaceuticals (NASDAQ: ARNA) Raised to Buy at Jefferies; Raised to Outperform at Leerink Swann.

AT&T, Inc. (NYSE: T) Raised to Outperform at Credit Suisse.

Beam Spirits Inc. (NYSE: BEAM) Maintained Hold at Argus.

Bed Bath & Beyond (NASDAQ: BBBY) Raised to Outperform at Credit Suisse.

Best Buy (NYSE: BBY) Cut to Neutral with $20 target at Credit Suisse.

Buffalo Wild Wings (NASDAQ: BWLD) Started as Outperform at Wells Fargo.

Chevron Corp. (NYSE: CVX) Reiterated Buy with $130 target at Argus.

Heckmann Corporation (NYSE: HEK) Started as Outperform with $5 target at Credit Suisse.

J.P. Morgan Chase & Co. (NYSE: JPM) Maintained Outperform but cut estimates at Credit Suisse; Cut to Hold at Stifel Nicolaus; Cut to Market Perform at FBR.

Myriad Genetics Inc. (NASDAQ: MYGN) Started as Neutral at BofA/ML.

ProAssurance Corp. (NYSE: PRA) named Bull of the Day at Zacks.

RadioShack Corp. (NYSE: RSH) named Bear of the Day at Zacks.

Rexnord Corporation (NYSE: RXN) Started as Neutral at Credit Suisse.

Research In Motion Limited (NASDAQ: RIMM) Maintained Neutral and cut estimates at Credit Suisse.

Sun Life Financial Inc. (NYSE: SLF) Raised to Outperform at Credit Suisse.

Texas Roadhouse (NASDAQ: TXRH) Started as Market Perform at Wells Fargo.

Verizon Communications, Inc. (NYSE: VZ) Raised to Outperform at Credit Suisse.

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JON C. OGG

Today the company priced a secondary offering of 8 million units at $55.28/common unit, a discount of about 3.5% to last night’s closing price of $57.29/common unit. The offering’s underwriters have an over-allotment option for 1.2 million additional shares. Morgan Stanley, BofA Merrill Lynch, Barclays, Citigroup, UBS Investment Bank and Wells Fargo Securities are acting as joint book-running managers for the offering.

On Monday the company announced that it would acquire Keystone Midstream Services LLC for $512 million. Keystone’s operations in the Marcellus shale play are owned by a consortium including Rex Energy Corp. (NASDAQ: REXX). MarkWest also announced last week it had signed a new gas processing deal with Chesapeake Energy Corp. (NYSE: CHK) that would involve expanding MarkWest’s capacity in the Marcellus shale play by about 60%.

While today’s secondary offering price is battering the company’s common unit price, it’s worth remembering that both the dilution and the lower price have no impact on the limited partnership’s ability to pay its quarterly distributions. The company’s long-term contracts are based on fixed prices that virtually guarantee that distributions will be paid. On Monday, MarkWest paid $0.79/common unit in distributions, and even with the increased demand for capital, the company expects distributable cash flow to range from $440-$500 million for the fiscal year. Distributable cash flow in the first quarter totaled $81.1 million, yielding a jump in distributions of nearly 18%.

MarkWest’s common units are taking a beating today though, down -4.3% at $54.82 in a 52-week range of $39.00-$61.60.

Paul Ausick

The United States Oil (AMEX: USO) is now down 4.1% at $37.23 and the Market Vectors Oil Services ETF (AMEX: OIH) is down 3.7% at $38.57.  Even the JPMorgan Alerian MLP Index ETN (AMEX: AMJ), which is supposed to not be so tied to oil and gas prices, is down 0.75% at $39.43 against a 52-week high of $41.68.

Maybe dividend hikes are helping to mitigate some of the losses in the major integrated oil outfits.  Exxon Mobil Corporation (NYSE: XOM) is down only 1.2% at $84.60 and Chevron Corporation (NYSE: CVX) is down about 2.1% at $103.75.

The drop is rather large in Schlumberger Limited (NYSE: SLB) with a loss of 3.7% at $69.95 for a loss of about $3 billion in market value.  Baker Hughes Incorporated (NYSE: BHI) has suffered substantially from its highs by a drop of half from its 52-week high and shares are now down 4.4% at $40.97.

Elsewhere shares of Transocean Ltd. (NYSE: RIG) is down 4.4% at $48.08 (down from a high of over $70), while National Oilwell Varco, Inc. (NYSE: NOV) is down ‘only’ 2.2% at $71.12.

Valero Energy Corporation (NYSE: VLO) is even lower by 3.1% at $22.80 even though certain drops in the price of oil will help its operating margins.  The caveat is that refiners need lower prices and actually they need stable prices so that they can have steadier pricing.

While its move to oil is marred by corporate problems tied to its CEO and governance issues, Chesapeake Energy Corporation (NYSE: CHK) is the only stock up on the major oil and gas stocks we follow.

This drop to $98 in crude is the lowest level since roughly February 10, 2012.  This is setting up to be the worst week for crude since the end of September.

JON C. OGG

But if prices fall that low, the big integrated oil companies like Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips (NYSE: COP), Total SA (NYSE: TOT), and BP plc (NYSE: BP) are going to be pinched. Exxon, for example, has based its 2012 budget on an average Brent crude price of $111/barrel. The company’s average production cost for a barrel of oil in 2011 was just under $101/barrel. Chevron’s average production cost for a barrel of liquids was nearly $103/barrel in 2011.

Bloomberg today cites Byron Wien of The Blackstone Group LP (NYSE: BX) with a forecast that crude prices will drop this year. Production is up in the Russia, Saudi Arabia, and the US, which should lead to lower prices. Bloomberg’s survey of 30 analysts puts a median price of $115.50/barrel on Brent for this quarter, but 6 of the analysts predicted prices at or below $100/barrel.

The fear premium that pushed Brent prices to more than $125/barrel earlier this year is being wrung out of the price now as the possibility recedes of a military confrontation with Iran. Demand in the developed world is falling, and China, the world’s largest consumer of crude after the US, has slowed both its economy and its oil imports.

These two factors are combining to push crude prices down at a pretty good rate. But a price of $100/barrel would mean that Exxon and Chevron would lose money on every barrel they produce. A $100/barrel price would also mean that all the supermajors would very likely have to scale back their plans for capex spending, which would significantly reduce exploration and future supply. That in turn would likely produce a supply shortfall which could easily cause a spike in crude prices if and when demand picks up.

It’s often said that the best cure for high prices is high prices. OPEC may get its target price, but that won’t cure the underlying cause for high crude prices. The stuff is scarce, even when it seems that there’s a lot of it available.

Paul Ausick

Despite a large increase oil prices which helped the results of other oil giants which include Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), BP’s profit for the first quarter was $5.9 billion down from $7.2 billion in the same period last year.

BP bragged about its new exploration and refinery prospects. The comments continue to be overshadowed by the largest mistake made by any multinational oil company in more than a generation.

Douglas A. McIntyre

Austerity vs. Stimulus

Germany continues its lonely quest for austerity as the key to the repair of EU finances. The position might not mean much if the region’s largest economy were not the cornerstone of bailout capital. According to the Financial Times, Germany’s finance minister Wolfgang Schäuble said, “The first precondition in order to have sustainable growth everywhere in Europe is fiscal consolidation. If now we talk about growth, it shouldn’t be understood as a change of direction. That would be a mistake.” The comments must have been taken as an insult because the finance minister of troubled Spain, Luis de Guindos, was present. His nation has an unemployment rate of over 24% and has moved into a recession. He and leaders of other weak nations in the region have argued that austerity be mixed with some level of stimulus. François Hollande, who likely will be the next president of France, has pushed for stimulus as well. Germany’s opposition will not be turned aside. It has too much money.

Bank of America Layoffs

The Wall Street Journal reported a rumor that Bank of America (NYSE: BAC) will cut as many as 2,000 jobs, primarily at its investment bank and commercial units. If this happens it is another sign that Wall St. firms in general have been hurt by a downturn in underwriting, M&A and business loans. Some estimates say that there are tens of thousand of jobs at risk at the largest investment banks, which include Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS). Bank of America has been particularly troubled by its weak balance sheet and fights with state and federal governments over its mortgage and mortgage financial instrument practices. Last year, Bank of America said it would cut 30,000 jobs. What were among the bank’s most-profitable units are now struggling as well.

Dow Rally Continues

The S&P 500 was down slightly last month, as was the NASDAQ. For each, it was the first drop since November. The DJIA rose a tiny amount, which kept its multimonth rally alive. The NASDAQ’s prospects would have been worse if it were not for the success of the shares in Apple (NASDAQ: AAPL) and, to a smaller extent, Google (NASDAQ: GOOG). Some experts say that the presence of the two companies in the index distorts its prospects. The improvement of the DJIA was driven by an increase in financial shares, especially JP Morgan (NYSE: JPM) and American Express (NYSE: AXP), as well as in tech giant Microsoft (NASDAQ: MSFT).

Douglas A. McIntyre

Johnson & Johnson (NYSE: JNJ) is playing catch-up to other DJIA healthcare players and the new yield is closer to 3.8%.  Call this the 50th consecutive year of dividend hikes.

Wednesday was a very different day in Big Oil.  Exxon Mobil Corporation (NYSE: XOM) went ahead and raised its dividend to catch its yield up to Chevron Corporation (NYSE: CVX).  Something strange happened along the way: Chevron went ahead and raised its dividend much sooner than expected… and on the same day! FULL STORY

The Coca-Cola Company (NYSE: KO) tried something new, or old.  It went back to the 1990s by announcing a stock split for the first time in well over a decade.

International Business Machines Corporation (NYSE: IBM) lifted its payout by 13% and showed why it may still rise to $230 over the next year.

From the Department of It’s About Time… The NASDAQ OMX Group, Inc. (NASDAQ: NDAQ) finally decided to do the right thing by initiating its first-ever dividend.

Investors rely heavily on utilities now for the high dividend yields of 5% or so.  In fact, utility stocks are the new CDs for safe income investors.  We saw two very different takes on the outlook for utilities and their dividends ahead.  This one hits American Electric Power Co., Inc. (NYSE: AEP) and several other key utilities.

Enjoy the rest of your weekend!

JON C. OGG

The unofficial closing bells put the DJIA up nearly 24 points to 13,228.24 (0.18%), the NASDAQ rose nearly 19 points (0.61%) to 3,069.20, and the S&P 500 rose 0.24% or more than 3 points to 1,403.37.

There were several analyst upgrades and downgrades today, including Philip Morris International Inc. (NYSE: PM) reiterated as ‘buy’ and target price raised to $94 at Argus; SanDisk Corp. (NASDAQ: SNDK) raised to ‘buy’ at Jefferies; Baidu Inc. (NASDAQ: BIDU) maintained as ‘neutral’ but target price cut at Credit Suisse; Amazon.com Inc. (NASDAQ: AMZN) raised to ‘buy’ at BofA/ML, Nomura, and Goldman Sachs; and Alcatel-Lucent SA (NYSE: ALU) maintained as ‘underperform’ and estimates cut at Jefferies.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Amazon.com is up 15.6% at $226.64; Callaway Golf Co. (NYSE: ELY) is down -14.9% at $5.94 (our coverage here); Clearwire Corp. (NASDAQ: CLWR) is down -2.7% at $1.43; Deckers Outdoor Corp. (NASDAQ: DECK) is down -25.5% at $51.78 after posting a new 52-week low of $51.03 (our coverage here); Weyerhaeuser Corp. (NYSE: WY) is down -0.3% at $20.81 (more coverage here); TransCanada Corp. (NYSE: TRP) is up 0.5% at $44.01; The Goodyear Tire & Rubber Co. (NYSE: GT) is down -5.1% at $11.32; Procter & Gamble Co. (NYSE: PG) is down -4% at $64.18 (our coverage here); Newell Rubbermaid Inc. (NYSE: NWL) is up 3.6% at $18.61; Merck & Co. (NYSE: MRK) is down -0.2% at $38.38; Helen of Troy Ltd. (NASDAQ: HELE) is up 4.4% at $35.33; Ford Motor Co. (NYSE: F) is down -2.1% at $11.62 (our coverage here); and Covidien plc (NYSE: COV) is up 0.5% at $55.32.

Be sure to look at our list of next week’s big earnings.

Other standouts from today include the following stocks:

Chevron Corp. (NYSE: CVX) is up 0.2% at $106.44. The supermajor oil company reported earnings in line, but production was down. More coverage here.

Allscripts Healthcare Solutions Inc. (NASDAQ: MDRX) is down -36% at $10.25 after posting a new 52-week low of $9.00. The healthcare services provider fired its chairman, and the list of woes goes on. More coverage here.

Expedia Inc. (NASDAQ: EXPE) is up 24.4% at $40.59. The Internet travel company posted better-than-expected quarterly results. More coverage here.

Western Digital Corp. (NYSE: WDC) is down -14.2% at $37.83. The disk drive maker had solid earnings, but worries abound about next quarter. More coverage here.

Stay tuned for Monday. We have noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – Personal income and spending
• 9:45 a.m. – Chicago PMI
• 10:30 a.m. – Dallas Fed manufacturing survey
• 11:30 a.m. – 3- and 6-month bill auctions
• 3:00 p.m. – Farm Prices

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Have a great weekend!

Paul Ausick