Wednesday, September 2, 2015

Gazprom's Earnings Continue to Soar

 If weak gas and oil prices were supposed to devastate the industry, Gazprom (OGZPY) is one of the last companies to hear about it, as it has been producing great earnings. And with a P/E ratio of about 5, it is a great value play.

There have been two major catalysts behind Gazprom's great year. The most important has been the shrinking value of the ruble, and second, was the decision by Russia to lower export taxes earlier in 2015. That combination has driven nice results for the natural gas and oil giant.

In its latest quarter it generated $4.75 billion in net profit, a gain of 29 percent year-over-year. It also enjoyed an annual growth rate of 50 percent in the first half.

Investors need to understand that even in the midst of a low-price or depressed commodity market, there is more than one way for a company to make money. Those able to identify them, as in the case of Gazprom, will get in before prices are bid up.

The reason why Gazprom has been doing so well is its costs mostly are domestic, which means they're traded in rubles, while its sale are primarily in the U.S. dollar and euro. The difference in value between them is what is driving Gazprom's success.

Add to that its continual strong performance in Europe, which represents approximately 56 percent of its export business, and the deals with China which will be a serious revenue and earnings source for many years, and you can see why Gazprom should continue to surprise to the upside.

As for the ruble, it's under pressure from low gas prices, but when it moves up again, it will take the ruble with it. That means, unless the ruble really soars in response to a rise in gas prices, margin and earnings should continue to do very well.

In the meantime, it's good entry point for Gazprom, and if you believe there is more room for gas prices to drop, it'll get even better. But as it is, this is a great time to think seriously about taking a position in Gazprom, as risk/reward is aligned nicely.

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