Stone Energy Corp. - Momentum

Stone Energy Corp. (SGY) has been trading like a rock star, recently hitting a new multi-year high as crude jumps above $110 a barrel. With estimates on the rise and a compelling valuation, this Zacks #1 rank stock is a momentum player.

Company Description

Stone Energy Corp is an independent oil and natural gas exploration company that operates primarily in the Gulf of Mexico and Appalachian region. The company was founded in 1993 and has a market cap of $1.62 billion.

Although SGY has been trending higher for the last few months, shares shifted into high gear in mid March as the market anticipates strong Q1 results on elevated crude and natural gas prices. That same dynamic lifted the company to a solid earnings surprise in late February that came in well ahead of expectations.

Fourth-Quarter Results

Although revenue was down from last year, earnings came in ahead of expectations at 50 cents as the company made a hard turn to reduce expenses and expand its margins.

Stone also scored big in two key metrics used to evaluate E&P’s (exploration & production), replacing 182% of its 2010 production and increasing its proved reserves by 15% from last year to 474 Bcfe (billion cubic feet equivalent).

Also of note, Stone is a fairly “oily” play, with 69% of the company’s Q4 revenue coming from crude.

Financial Profile

The company has also been using some of its recent earnings momentum to strengthen its balance sheet, with cash and equivalents up $43 million from last year to $112 million.

Estimates

We’ve seen some decent movement in estimates over the last few months as crude continue to grind higher, with the current year up 31 cents to $2.44. The next-year estimate is bullish, pegged at $3.11, a 27% growth projection.

Valuation

But in spite of recent gains, the valuation picture looks great, with a forward P/E of 14X, well below its peer average of 24X. Its PEG ratio (PE/Growth) of .52%, well below the traditional benchmark of 1 for value.

12-Month Chart

On the chart, SGY has been hot for the last six months, more than tripling in price after recently hitting a new multi-year high at $34.61. Look for support from the long-term trend on any weakness, take a look below.