The Razor's Edge

2-Year Price History

Ockham's Rating

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EOG Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at EOG through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 5.08x and 2.71x respectively.

Utilizing this range we can see that EOG’s current Price to Sales per share ratio of 2.89x is significantly below its average levels historically. In fact, with a current price of $85.02, EOG is a full 26% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for EOG.

EOG Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of EOG, Ockham views their current Cash Earnings as significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for EOG to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 9.63 and a 5.15 low over the same period.

Now that EOG’s current price is $85.02 and its Price to Cash Earnings ratio is 5.73, we are very positive on its outlook from the cash earnings perspective. In fact, EOG is now trading a full 23% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why EOG has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

EOG Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In EOG’s case, the estimated annual dividend is $0.54 resulting in a current dividend yield of 0.64%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from EOG against the historic high and low levels over the past 10 years. The highest dividend yield from EOG over this period was 1.03% while the lowest dividend yield was 0.18% Therefore, the current dividend yield of EOG is above the historical median by 5.79%. This is definitely a positive in our view.