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IMPERIAL OIL $41.25

Imperial Oil is selling its remaining Esso gas stations. This will let the company focus on its oil sands operations. These projects will prosper when oil prices recover, and enhance the company’s growth prospects.

IMPERIAL OIL $41.25 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $34.4 billion; TSINetwork Rating: Average; Dividend yield: 1.4%; www.imperialoil.ca) is a major integrated oil company with oil sands projects in Alberta and conventional oil and gas operations across Western Canada. It also operates three refineries.

Imperial is now selling its 497 company-owned Esso gas stations to independent operators for $2.8 billion. Following the sale, franchisees will operate all 1,700 Esso stations across Canada.

In the three months ended December 31, 2015, Imperial produced an average of 400,000 barrels of oil equivalent per day (95% oil and 5% natural gas). That’s up 27.0% from 315,000 barrels a year earlier. However, even with the higher output, lower oil and gas prices cut Imperial’s revenue by 22.5%, to $6.2 billion from $8.0 billion. Cash flow per share dropped 65.6%, to $0.65 from $1.89.

Imperial will still continue to expand its two main oil sands properties—Kearl and Cold Lake. Meanwhile, its three refineries continue to benefit from depressed oil prices. That cheaper crude cuts the input costs for those operations and increases their profit margins.

The stock trades at 13.5 times its projected 2016 cash flow of $3.05 a share. However, rising output could drive that to $4.72 in 2017—even if oil stays low. The shares trade at 8.7 times that forecast.

Imperial Oil is still a safety-conscious buy.

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