Investors looking for both strong earnings growth and a big yield should check out Legacy Reserves LP (LGCY). The company is expected to grow earnings by 182% in 2011 and pays a distribution that yields a hefty 6.6%.
Valuation is attractive too, with shares sporting a PEG ratio of 0.78. It is a Zacks #2 Rank (Buy) stock.
Company Description
Legacy Reserves LP is an independent oil and natural gas limited partnership. It is headquartered in Midland, Texas and has a market cap of $1.4 billion.
Fourth Quarter Results
On March 2, Legacy reported its results for the fourth quarter of 2010. Revenue surged 18.0% from the prior quarter as production volume increase from 9,804 to 10,337 barrels of oil equivalent per day.
Average realized oil prices climbed 12% to $78.93 per barrel, up from $70.21 per barrel in Q3.
Meanwhile, operating income was up 82.1% over the same period as the company was able to leverage its fixed expenses. Adjusted EBITDA, a good measure of cash flow, increased 11.2%.
Adjusted net income per unit came in at 29 cents, falling 2 cents shy of the Zacks Consensus Estimate.
Estimates Rising
Despite the earnings miss, analysts have been raising their estimates since the company reported Q4 results.
The Zacks Consensus Estimate for 2011 is $1.80, representing 182% growth over 2010 earnings. The 2012 estimate is $1.96 per unit, representing 9% growth.
It is a Zacks #2 Rank (Buy) stock.
6.6% Yield
Legacy increased its quarterly distribution to $0.525 per unit in early 2011, which marked its first increase July 2008.
It currently yields an impressive 6.6%.
PEG Ratio Below 1.0
Valuation is attractive with shares trading at 17.4x forward earnings, a discount to the industry average of 22.7x. Its PEG ratio is just 0.78.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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