(excerpt)

France began to realize the importance of having a domestically controlled source of oil shortly after the end of World War I. At the same time, other major countries were establishing partnerships and expanding production into the Middle East. France was determined not to be left behind and began operations in modern day Iraq, alongside the British.

Fast forward 100 years and Total S.A., a French oil company has grown to employ nearly 100,000 people with global revenue of $143 billion. Total S.A. is one of seven “super major” oil companies in the world and their output has a meaningful impact on global supplies. Just like 100 years ago, oil remains a key military asset and a driver of growth for the domestic economies of many nations. …

…By almost any measure, digging into the financial reports of an energy company is ugly right now, and Total S.A. is no different. Revenue has dropped by more than 40% over the past four years. Earnings per share (EPS) has declined by nearly 70%, and gross profit has been halved. Total S.A.’s stock price has followed suit, down over 33% from its peak of $73.20 in 2014.

The numbers have been alarming, but hope is on the horizon. Oil prices have nearly doubled since their January lows, and the worst may be behind. Total S.A. is well positioned for revenue growth if oil prices can stabilize and is a great value compared to its competitors. Total S.A.’s Forward P/E ratio stands at roughly 14, far less than industry average of nearly 42. Also as mentioned, Total S.A.’s operating margins are much more attractive than its peers and we expect that number to improve as capital reductions continue. …

…Energy stocks have been on quite the roller coaster ride over the past few years, but we feel this has created a buying opportunity for high-quality energy companies. Total S.A.’s new CEO appears to have been making all the right moves in a very difficult market environment. The company has done an excellent job of reducing costs and increasing margins and has positioned itself very well for rebounding oil prices. …

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