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Analyst Blog

On Jan 10, 2014, we have reiterated our Neutral recommendation on TOTAL S.A. (TOT - Analyst Report). The company currently has a Zacks Rank #4 (Sell).

Why the Reiteration?

TOTAL continued with its aggressive drilling and exploration strategy. TOTAL leveraged its strong financial position to make acquisitions and divested its less productive assets during the quarter to become more competitive.

The decision of TOTAL to venture into the renewable energy space is appreciable. The company along with its subsidiary SunPower Corporation (SPWR - Analyst Report) is involved in quite a number of large solar projects – worth mentioning among them is the Antelope Valley Solar Project (AVSP) in California. TOTAL’s investment in the solar sector could pay rich dividends going forward.

TOTAL also has numerous exploration and production projects in various stages of development. These projects are scheduled to come online in the next few years, which will further strengthen the position of this oil and gas major. Timely completion of these projects holds the key; however, any delay in the gestation period of the projects could negatively impact the company’s profitability.

TOTAL operates in more than 130 countries, which provide a stable production stream, but also make it vulnerable to exchange rate fluctuation, political turmoil and change in policies from the governments.   

In addition, despite the precautionary measures taken by the company, the possibility of accidents cannot be fully ruled out. Any recurrence of the accidents like in the UK North Sea or Nigeria could impede the production targets of the company.

Other Stocks to Consider

Better-ranked companies in the oil & sector include YPF S.A. (YPF - Snapshot Report) and Imperial Oil Ltd. (IMO - Snapshot Report), both with a Zacks #2 Rank (Buy).

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