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YPF Is Analysts’ Top Integrated Energy Pick

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Analyst ratings for YPF

We’ll begin our discussion of the top ten integrated energy stocks with YPF (YPF), which has the most “buy” ratings. YPF is an integrated oil and gas firm in Argentina. YPF’s market cap of $9 billion is the lowest among the ten integrated energy stocks we’re discussing in this series. As the graph below shows, 12 (or 92%) out of the 13 analysts covering YPF have rated it a “buy” in December 2017. Only one analyst has rated YPF a “hold.”

YPF’s high percentage of “buy” ratings could be due to the regulated environment in the Argentinian energy industry. YPF benefits from subsidies in the gas segment and controlled oil prices. Nonetheless, now the economy seems to be shifting with a focus on increasing the removal of subsidies and the convergence of domestic oil prices to international crude oil prices.

YPF’s implied gain

YPF’s analyst ratings have improved in December 2017 over December 2016. Also, during the same period, YPF’s mean target price has risen by 29%. YPF’s mean price target of $29 per share implies around a 29% gain from the current level, the highest among the stocks discussed in this series. The gains were even larger earlier. The drop in implied gains is due to the steeper rise (of 37%) in YPF stock compared to the rise (of 29%) in its mean target price in December 2017 over December 2016.

However, since October 2, the stock has fallen 2.9% in 4Q17. Also, the company’s dividend yield stands at 0.5%, lower than the other integrated energy stocks discussed in this series.

Valuations

YPF trades at a forward PE of 13.9x, below the average forward PE of our ten integrated energy stocks at 23.8x. YPF also trades at 3.9x its forward EV-to-EBITDA, below the peer average of 6.1x. One of the important factors impacting valuations could be the ongoing deregulation of the energy industry in Argentina. The markets could be waiting to see the precise impact of the deregulation on the company. Also, the fact that YPF has high debt relative to its earnings power in terms of its net-debt-to-EBITDA ratio could be suppressing valuations.

But lower valuations with the expectation of improving fundamentals (in terms of reducing debt and increasing free cash flows) and earnings growth has likely translated into higher positive analyst ratings for YPF.

Move onto the next part to know about analyst ratings for Royal Dutch Shell (RDS.A), the integrated energy company with the second highest amount of “buy” ratings.

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