Stock Strategist

Total Demonstrates Strength of Operations

Allen Good, CFA

 Total (TOT) ended 2017 on a high note, reporting strong fourth-quarter results and reinstating the cash dividend via offsetting share repurchases. Management took the extra step of announcing its intentions to increase the dividend by 10% and repurchase $5 billion worth of shares through 2020. With its buyback announcement, Total joins peers that have already announced similar intentions or intimated that excess cash would go toward repurchase. However, its formalized plans to increase the dividend set Total apart from most peers, which have been less forthcoming on that front. The earnings and shareholder return announcements confirm our view of the strength of Total’s operating businesses and cash flow generation capability, which create a low break-even level ($47 a barrel in 2018, by our estimate). Management also updated its long-term outlook, although most major guidance items such as production growth and capital spending were unchanged. Our fair value estimate and moat rating are unchanged as well.

Adjusted net earnings for the fourth quarter increased to $2.9 billion from $2.4 billion the year before, and operating cash flow climbed to $6.0 billion from $4.8 billion, thanks largely to a strong upstream performance, which offset downstream weakness. Upstream operating earnings increased to $1.8 billion from $1.0 billion the year before on higher price realizations and production. Production for the quarter grew 6% from the year before, thanks to new project startups and inclusion of the Al-Shaheen oil field concession, bringing full-year production growth to 5%. Total maintained its previous production outlook for a 5% compound annual growth rate through 2022 while expecting 6% growth in 2018, ranking it among the highest of the integrated group.

Allen Good, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.