Total SA Totally Still a Buy

We remain buyers of Total SA (TOT - Analyst Report) after the French energy giant reported first quarter results. We continue to like the company for its positive production-growth profile, attractive returns and an improving outlook for the refining and chemical businesses. Growth in production is now higher than its peers, and we expect momentum to accelerate in the coming quarters.

Total has one of the best production-growth profiles among the oil super-majors, driven by an above-industry-average exposure to the faster growing hydrocarbon producing regions of the world. With the lowest exposure to the mature North American and North Sea regions among peers, Total’s upstream assets have lower natural decline rates and have longer productive lives. Its strong balance sheet gives the company the flexibility to raise dividend payouts and share buybacks, while maintaining a strong capital expenditure program.

Total trades at a price/earnings multiple of 12.0x our 2008 revised earnings estimate, a discount to its super major peers, Exxon (XOM - Analyst Report) and BP (BP - Analyst Report). We increase our price target to $95 on expectations that Total’s trading multiple will expand to the 13.0x to 14.0x range thanks to its restructuring initiatives in its chemicals business and its industry-leading returns on capital. Although the stock is getting less cheap, we believe there is still upside potential given the earnings and price momentum together with favorable sector trends.

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