El Paso Corporation (EP) has surprised on the Zacks Consensus Estimate 3 out of the last 4 quarters by an average of 24.49% even as the prices of natural gas and oil have plunged. The company is cheap, trading at just 9.3x forward earnings.

Company Description

El Paso Corporation is a large independent natural gas producer and operates one of North America’s largest interstate natural gas pipeline systems.

El Paso Surprised by 19.05% on the Second Quarter

On Aug 6, El Paso reported its second quarter results and beat the Zacks Consensus Estimate by 4 cents. Earnings per share were 25 cents which was lower than the 39 cents from a year ago. Lower natural gas and oil prices impacted the results.

The company saw production rise in the Central and Western divisions by 6% and 5%, respectively, over the year ago period.

With the drop in crude and natural gas prices, the company reduced its drilling rig activity by 70% since the third quarter of 2008. In response to the economic conditions, it has cut its overall per-unit cash costs.

On the positive side, the Pipeline Group grew compared with the same quarter in 2008 but this was offset by the decline on the E&P side of the company. The Pipeline Group brought two projects into service during the quarter.

El Paso has price protection through hedging for 70% of its domestic natural gas production for the second half of 2009. The company also hedges its oil production, with fixed-price hedges on 1.3 million barrels of crude oil with an average price of $53.75 per barrel.

Full Year Zacks Consensus Estimate Moves Higher

The third-quarter Zacks Consensus Estimate has been stable over the past 60 days, holding at 21 cents per share.

Analysts are a bit more bullish on the full year, as the Zacks Consensus Estimate has risen 8 cents to $1.07 per share in the last month.

Value Fundamentals

El Paso is a Zacks #1 Rank (strong buy) stock. It has a price-to-book of 2.35. The company has a solid 5-year average return on equity (ROE) of 10.31%. As an added bonus, El Paso pays a dividend with a current yield of 2.10%.

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