North American Energy Partners Inc. (NOA) posted a big earnings surprise in the third quarter as the pipeline segment picked up. NOA is trading at 12.11x forward earnings.
Company Description
North American Energy Partners provides heavy construction, mining, piling and pipeline services in Western Canada to large oil and natural gas companies, including design and project implementation.
It specializes in the Canadian oil sands and is currently contracted to remove overburden at Canadian Natural Resources’ Horizon project.
North American Energy Rebounded in the Third Quarter
On Feb 1, North American reported results for the third quarter of 2010 that blew away analysts estimates by 231.25%. Earnings per share were 53 cents compared to the Zacks Consensus of 16 cents.
This was a big improvement from the previous quarters. In the second quarter, it posted EPS of only 3 cents and in the prior three quarters, combined, the company saw 6 cents in earnings.
Revenue, however, still fell from the year ago period to $222.7 million from $258.6 million in the third quarter of 2008. Gross profit margin rose to 21.3% from 19.7%.
The pipeline segment boosted the quarter, as the company proceeded with projects for Terasen Gas Inc. and Spectra Energy Corp.
The oil sands business also continued to provide stability given that it is recurring services. North American Energy said it saw signs that the climate for oil sands investment was also improving, even though overall activity levels remain below last year.
Fourth Quarter Outlook
Despite weak economic conditions, the recurring services volumes are expected to gradually strengthen as normal overburden removal activity levels return at Canadian Natural’s Horizon project and due to steady demand from Shell Albian’s oil sands sites.
As other large oil companies ramp up projects in the oil sands, North American Energy expects increased demand on all service providers but project development will be more moderate compared to the level seen in the past.
The Pipeline segment is also projected to boost the fourth quarter as existing projects reach peak operations during the colder months. Competition for new projects remains intense, however.
Things aren’t so great in the Piling segment, which continues to see weakness and activity remains well-below fiscal 2008 and 2009 levels.
Zacks Consensus Estimates Soar
Analysts like what they heard from the company in early February as the fourth quarter and full year estimates took off in the last month.
The fourth quarter Zacks Consensus jumped 111% to 28 cents from 18 cents during that time, with 3 estimates revised higher.
The Zacks Consensus for fiscal 2010 rose by 68% to 84 cents compared to 50 cents just 30 days earlier. Analysts are also bullish on fiscal 2011. They expect earnings per share growth of 34.42%.
Value Fundamentals
North American Energy Partners is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of just 2.09. North American has a stellar 5-year average return on equity (ROE) of 14.24%.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
