The Zacks Analyst Blog Highlights: China Petroleum and Chemical, Apache, Chevron, SM Energy and GOL Linhas Aereas

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Nov 29, 2013, 09:30 ET

CHICAGO, Nov. 29, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the China Petroleum and Chemical Corporation (NYSE:SNP-Free Report), Apache Corp. (NYSE:APA-Free Report), Chevron Corporation (NYSE:CVX-Free Report), SM Energy Company (NYSE:SM-Free Report) and GOL Linhas Aereas (NYSE:GOL-Free Report).

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Here are highlights from Wednesday's Analyst Blog:

Sinopec to Own Stake in Kitimat LNG?

Reportedly, China Petroleum and Chemical Corporation (NYSE:SNP-Free Report) is discussing the purchase of a minor stake in Kitimat liquefied natural-gas (LNG) project with U.S. energy firm Apache Corp. (NYSE:APA-Free Report). China Petroleum and Chemical Corporation, also known as Sinopec, is one of the largest petroleum and petrochemical companies in Asia.

Details relating to the purchase have not been disclosed. Moreover, Sinopec's management has not sanctioned the investment yet. However, a source revealed that Sinopec's stake investment will be utilized to fund the LNG project.

The Kitimat LNG development includes undeveloped shale assets covering roughly 644,000 acres of land, pipelines and a processing plant of LNG. Apache owns 50% of the project whereas Chevron Corporation (NYSE:CVX-Free Report), U.S. energy behemoth, holds the rest.

China is now consuming roughly 5% natural gas out of its total primary energy consumption. Government of China is focusing to increase it to 10% by 2020. However, China is not in a position to support the increased gas consumption through domestic production. To tap this opportunity, Sinopec is considering the investment in the Kitimat project.

Sinopec with its head office in Beijing, China, is the second largest crude oil and natural gas producer, and the largest refiner and marketer of refined petroleum products in China. The company is also the largest producer and distributor of petrochemicals in the nation.

Sinopec has been exploring expansion and acquisition opportunities offshore and abroad to reduce its exposure to mature domestic markets. However, competition from domestic and international peers, as well as the possibility of time-consuming government deregulation and internal company restructuring, make near-term progress difficult.

Sinopec currently holds a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

However, one can consider a better-ranked energy player like SM Energy Company (NYSE:SM-Free Report) that offers value. The stock sports a Zacks Rank #1 (Strong Buy).

Tough Times for GOL Linhas

It has been a tough couple of years for Brazilian low-fare airline GOL Linhas Aereas (NYSE:GOL-Free Report) owing to soft domestic air travel demand and the subsequent fall in profitability. The carrier's problem has only been aggravated by the weakening of the Brazilian Real, which has increased its fuel expenditure.

Market sentiment on the stock has also remained bearish from the beginning of the year as the stock has lost almost 37% of its value year to date. It seems now that the scenario could remain the same next year.

The biggest impediment toward GOL's 2014 growth is the persistent weakness in Brazil's economy. The country's central bank expects its GDP (gross domestic product) growth to fall to 2.1% in 2014 as opposed to an expansion of 2.5% in 2013. Further, significant long-term debt of R$5,054.7 million (approximately $2,395.4 million) at the end of the third quarter, remains a concern for the company.

Although GOL foresees stable demand within Brazil, it has warned of reducing network next year if the situation warrants. The company is preparing for asset sales, layoffs and other cutbacks to return to profitability and strengthen balance sheet.

Brazil will host the 2014 football world cup, which is one of the biggest sporting extravaganzas. The country is expected to get around 600,000 international visitors in addition to 3 million domestic fans during the event, presenting a big opportunity for passenger carriers like GOL.

However, Brazilian tourism agency Embratur remains sceptical about the capability of the domestic carriers to support air travel demand during the month long event. The agency is in favour of opening up Brazilian skies to foreign players, who currently run international flights to and from Brazil. A decision on the matter is expected in the first week of December.

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