For Immediate Release
Chicago, IL – August 12, 2009 – Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include Apache (APA), Concho Resources (CXO), Noble Energy (NBL), St. Mary Land & Exploration Company (SM), Newfield Exploration (NFX) and iShares Dow Jones U.S. Oil & Gas Exploration & Production (IEO).
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
This week: Better Conditions for E&P Companies
Last May, I discussed the possibility of a turnaround for oil & gas exploration and production (E&P) companies. Higher production and cost control measures led to positive earnings estimate revisions.
Three months later, the trend continues. Production levels, particularly in the North Sea and the Middle East, are increasing. Costs continue to be reined in. And analysts are raising their full-year profit forecasts further. During the past few weeks, 292 profit forecasts have been increased.
Commodity Prices Playing A Role
Rising oil prices are helping. Though significantly down from last year (crude peaked at $147.27 on Jul 11, 2008), crude rebounded throughout the second quarter. Furthermore, given the likelihood of economic expansion in the coming months, it is probable that a floor for oil prices has been set.
Natural gas prices may have hit a bottom. Natural gas started the year at $6.50 per million BTU and fell to under $4.25 by the end of the first quarter. The second-quarter drop was less severe, however, with natural gas ending June at about $4.
While there is still some weakness, a bottom seems to be setting.
Expenses Are Being Controlled
The biggest benefit to the E&P companies, however, has been costs.
CFOs have limited expansion to only what cash flows allowed. In addition, they’ve also worked to limit overhead costs.
The other positive factor is drilling costs. Apache’s (APA) North American President, John A. Crum, noted on the conference call that his company “can drill and complete a well today for roughly two-thirds of last year’s costs.” In addition to higher demand last year for parts and services, several other commodities, such as steel, were also in a bubble.
Analysts May Have Been Too Pessimistic
Though conditions do seem to be improving for the industry, overly pessimistic profit forecasts are contributing to the upward revisions. Brokerage analysts factored in crude prices that were too low, underestimated cost reductions and incorrectly projected production rates.
We saw the impact of this with both the number of positive second-quarter surprises and the resulting increases in full-year earnings estimates:
- Apache (APA) beat by 31 cents with earnings of $1.31 per share. Analysts subsequently raised their 2009 profit projections by 66 cents, resulting in a Zacks Consensus Estimate of $4.85 per share.
- Concho Resources (CXO) beat by 15 cents with adjusted earnings of 34 cents per share. Analysts subsequently raised their 2009 profit projections by 25 cents, resulting in a Zacks Consensus Estimate of $1.12 per share.
- Noble Energy (NBL) beat by 11 cents with earnings of 66 cents per share. Analysts subsequently raised their 2009 profit projections by 40 cents, resulting in a Zacks Consensus Estimate of $2.82 per share.
- St. Mary Land & Exploration Company (SM) topped expectations for breakeven results with profits of 24 cents per share. Analysts subsequently raised their 2009 profit projections by 42 cents, resulting in a Zacks Consensus Estimate of 47 cents per share.
- Newfield Exploration (NFX) beat by 20 cents with earnings of $1.28 per share. Analysts subsequently raised their 2009 profit projections by 43 cents, resulting in a Zacks Consensus Estimate of $4.47 per share.
CXO is a Zacks #1 Rank (“strong buy”) stock. NBL, NFX and SM are Zacks #2 Rank (“buy”) stocks. APA is a Zacks #3 Rank (“hold”) stock. (Apache’s rating is hurt by the fact that nearly one-third of the covering analysts have yet to adjust their profit forecasts. This, however, does leave open the possibility of more positive estimate revisions occurring over the next several weeks.)
All of these stocks belong to the Oil-US Exploration & Production industry group.
Related ETFs
Though there are several energy-related ETFs, iShares Dow Jones U.S. Oil & Gas Exploration & Production (IEO) provides the best exposure. The fund has a good combination of focusing on the E&P companies and a high level of average daily trading volume.
Zacks “Profit from the Pros ” e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5611.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3:1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it’s your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit From the Pros by going to http://at.zacks.com/?id=5610.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Contact: Charles Rotblut, CFA
Company: Zacks.com
Phone: 312-265-9352
Email: pr@zacks.com
Visit: www.zacks.com