IMPERIAL OIL LTD. $40 - Toronto symbol IMO

IMPERIAL OIL LTD. $40 (Toronto symbol IMO; Conservative Growth Portfolio; Resources sector; Shares outstanding: 847.6 million; Market cap: $33.9 billion; Price-to-sales ratio: 1.1; Dividend yield: 1.2%; TSINetwork Rating: Average; www.imperialoil.ca) has started operating its new Kearl oil sands project in northern Alberta. Imperial owns 71% of Kearl. ExxonMobil Corp. (New York symbol XOM) owns the remaining 29%. Exxon also owns 69.6% of Imperial.

Kearl is the biggest project in Imperial’s history. Its first phase will produce 110,000 barrels a day (Imperial’s share is 78,100 barrels) by the end of 2013. The project’s second phase will add a further 78,100 barrels to Imperial’s daily production by late 2015. Kearl’s reserves should last 40 years.

Meanwhile, Imperial produced 284,000 barrels of oil equivalent a day in the three months ended March 31, 2013. That’s down 1.7% from 289,000 barrels a year earlier. The decline is mainly the result of planned maintenance at the Syncrude oil sands project; Imperial owns 25.0% of Syncrude.

An 8% drop in Imperial’s selling price for oil pushed down its earnings by 21.4%, to $798 million, or $0.94 a share. A year earlier, it earned $1.0 billion, or $1.19 a share. Cash flow per share fell 17.4%, to $1.19 from $1.44.

However, revenue rose 6.4%, to $8.0 billion from $7.5 billion. That’s because revenue at Imperial’s downstream operations (refineries and gas stations) rose 10.0%. The downstream business supplied 74% of the company’s revenue and 59% of its earnings in the latest quarter.

The shares trade at a reasonable 10.0 times the company’s projected 2013 earnings of $3.99 a share and 7.2 times its forecast cash flow of $5.56 a share. The $0.48 dividend yields 1.2%.

Imperial Oil is a buy.

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