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AG Edwards Keeps 'Hold' on Kerr-McGee

AG Edwards reiterates its hold rating on Kerr-McGee (KMG).

Analyst Bruce Lanni says the energy exploration company will take a $385 million fourth quarter after-tax noncash charge, which is in line with his $300 million to $400 million estimate. The charge will reduce equity, but not necessarily depletion, depreciation, or amortization. Lanni says although the impairment will slightly boost earnings, Kerr-McGee's adjusted return on capital employed (ROCE) will fall below his 6%-7% estimate. He notes the company is trading at 18 times his mid-cycle earnings per share estimate, and he sees the stock as fairly valued.

Lanni thinks acquisitions, divestments, and exploratory successes have improved Kerr-McGee's competitive position, but he thinks execution remains a problem. Lanni sees 66 cents fourth quarter earnings per share from operations, and $3.45 for 2003.

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