November 11, 2019

Chart of the Day: Saudi Aramco vs. S&P 500 Integrated Oil & Gas

by David Aurelio.

Saudi state own oil giant Saudi Arabian Oil Co (IPO-ARMO.SE), commonly known as Saudi Aramco, is expected to IPO on Nov. 17. Reuters reports that bankers expect Saudi Aramco to be the most valuable company in the world at $1.5 trillion. This would be roughly 2.7 times the market cap of the S&P 500’s integrated oil & gas companies, which includes Exxon Mobil Corp (XOM.N), Chevron Corp (CVX.N), and Occidental Petroleum Corp (OXY.N).

Saudi Aramco’s 2018’s revenue was roughly 75% of the total for S&P 500’s integrated oil & gas, which means that Saudi Aramco’s valuation is roughly 4.2 times sales vs. 1.8 for S&P 500’s sub-industry constituents. The reason for this massive differential is due to the difference in profitability. Aramco boasts a hefty 31.2% net profit margin compared to 8.3% for the S&P 500’s integrated oil & gas sub-industry. This would put Saudi Aramco’s $1.5 trillion valuation to 2018 net income near 13.5 vs. 14.2 for the S&P 500 integrated oil & gas’s aggregated market cap to 2018 net income.

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