Many independent energy producers have thrived the last few years as high oil prices and rapidly expanding production have led to roaring cash flow and strong share prices. However, good times have bypassed a number of companies, especially those heavy into natural gas production, and several have seen their stock prices underperform over the last 12-24 months.
I looked at five energy stocks who have seen their stocks fall instead of rise the last 12-24 months within the energy sector to see if there is any value to be had for investors. The companies are:
I focused on the health of the companies by looking at their fundamentals, as well as eying their prospects going into 2013.
Chesapeake Energy Corporation
Financials: Chesapeake's recent closing price was $17.23, within a 52-week trading range of $13.32 - $26.85. In fact, the share price has fallen around 50% over the past 20 months. The company currently has no meaningful Price to Earnings ratio with negative earnings per share of -$1.20. Chesapeake has a horrific current ratio of 0.56. It has a profit margin of -5.18% and an operating margin of 12.94%. The company declared a quarterly dividend of $0.0875 per share, with an annual yield on the dividend at 2% and a payout ratio of 9%.
Profile & Recent News: Chesapeake Energy develops natural gas and oil properties in the United States. The company completed a series of deals worth roughly $7 billion to sell off vast portions of its land and infrastructure in Texas to a number of buyers. This was to help the company pay down its massive debt.
The company's most recent SEC 10K is gruesome reading. The company has been slammed by low liquid natural gas prices while it has been investing heavily in new production plays, especially in Ohio. The company had expected to stop its negative cash flow by the end of this year but is now advising that the red will continue to gush deep into 2013. With heavy debt and needing to sell off assets to stay afloat, avoid these shares like the plague.
Continental Resources, Inc.
Financials: Continental Resources' recent closing price was $69.85, within a 52-week trading range of $61.02 - $97.19. The company currently trades at a Price to Earnings ratio of 31.09 with earnings per share of $2.25. Continental Resources has a current ratio of 1.09. It has profit margin of 20.06% and operating margin of 34.02%. It pays no dividends.
Profile & Recent News: Continental Resources, Inc. engages in the production of crude oil and natural gas primarily in the north, south, and east regions of the United States. The oil company revealed a new shale-oil discovery in Oklahoma may add the equivalent of 1.8 billion barrels of crude to the company's reserves as it drills more than 2,000 wells in coming years.
Continental's third-quarter earnings plummeted 90% from the after effects of 2011 derivative plays, though revenue and core profits improved in the latest period. The company has also launched a five year plan to triple reserves and oil production by 2017. I think it is possible. With its currently depressed share price, combined with positive core revenue and profits, Continental Resources is a strong buy opportunity despite the high P/E ratio.
Devon Energy Corporation
Financials: Devon Energy's recent closing price was $54.02, within a 52-week trading range of $53.84 -$76.34. The company currently trades at a Price to Earnings ratio of 34.30 with earnings per share of $1.58. Devon Energy has a strong current ratio of 1.72. It has profit margin of 7.63% and operating margin of 28.20%. The company declared a quarterly cash dividend of $0.20 per share, payable on December 31, 2012 to common shareholders of record on December 14, 2012, with an annual yield on the dividend is 1.40%. The payout ratio is a very conservative 12%.
Profile & Recent News: Devon Energy is into the production of oil, natural gas, and natural gas liquids. The company posted a third-quarter loss on a large asset-impairment charge as the independent oil and gas producer posted a steeper-than-expected revenue decline. It is also closing some administration offices in a cost cutting move. The company agreed in August to sell 30% of its interest in about 650,000 net acres in the oil-rich Cline and Midland-Wolfcamp shale plays in West Texas to Japan's Sumitomo Corp. in a deal valued at about $1.4 billion.
Like Chesapeake, Devon is in the situation of selling assets to pay the bills, but the difference is that Devon's sales have given them a comfortable cash position. In the end, Devon's move should make it profitable, but with two successive quarters of sharp revenue disappointment I would put this company on my watch list. I want to see evidence that the turnaround is gaining traction before I would think of buying.
Halcon Resources Corporation
Financials: Halcon Resources recent closing price was $5.48, within a 52-week trading range of $2.73 - $13.35. The company's earnings per share are -$1.78. Halcon Resources has a healthy current ratio of 6.34. It has a negative profit margin of -26.11% and operating margin of 13.35%. The company pays no dividends.
Profile & Recent News: Halcon Resources is another company that develops and produces oil and natural gas properties in the United States. The company was formerly known as RAM Energy Resources, Inc. and changed its name to Halcon Resources Corporation in February 2012.
Halcon plans to use some of its cash to buy assets in the Williston Basin in North Dakota from privately held Petro-Hunt LLC for about $1.45 billion, boosting its proved reserves by 58 percent. The company is aggressively expanding its acreage leases and its value comes from the sense of how soon can Halcon be able to produce on their plays.
According to Halcon management they are expecting to ramp up production quickly in 2013. Most watchers, myself included, have doubts the company can meet its lofty goals. This is another one for the watch list. I want to see one to two more quarters of production to confirm that company plans are coming through.
SandRidge Energy, Inc.
Financials: SandRidge Energy's recent closing price was $6.10, within a 52-week trading range of $5.55 -$9.04. The company currently trades at a Price to Earnings ratio of 3.71 with earnings per share of $1.64. SandRidge has a current ratio of 1.19. It has eye-popping profit margin of 50.39% and operating margin of 61.71%. The company pays no dividends.
Profile & Recent News: SandRidge Energy also develops both oil and gas properties. The company focuses on the Mid-Continent and Permian Basin. Recently SandRidge shares took a beating after it revealed plans to sell its position in the Texas Permian Basin to fund development of its operations in Oklahoma and Kansas.
The decision on whether SandRidge is a good buy is dependent on your position on what is the better play, Texas or the other mid-continental areas. I wrote about the regional oil supply imbalances in this article. There are some excellent reasons why SandRidge should change the regional targets for its future growth, but expect some hiccups in production in the future as the company switches areas. I would avoid these shares for now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.