Energy XXI Limited (EXXI) is a fairly unknown exploration play. Not a whole lot of articles are written about the company despite its $3.5B market capitalization. I have notices recently that several analysts have had positive comments on the stock recently. Its valuation also seems intriguing at these levels as revenues and earnings are predicted to grow significantly in 2013.
Recent positives for EXXI:
- Miller Tabak just initiated the shares as a "Buy" and has a $46 price target on the stock, just under 50% above the current stock price.
- This follows Ladenburg Thalmann who previously initiated the shares with the same rating in late November.
- Cannacord Genuity also initiated the shares as a "Buy" in early October.
- In addition to the positive comments from these analysts, consensus earnings estimates for both FY2012 and FY2013 finally ticked up last week after falling for months (A significant portion of falling consensus was higher effective tax rate going forward).
Energy XXI (Bermuda) Limited develops and produces oil & gas from properties onshore in Louisiana and Texas, and offshore in the Gulf of Mexico.
4 reasons EXXI has upside from $31 a share:
- Revenue growth is expected to accelerate from just over 10% this fiscal year to over 30% in FY2013 according to consensus estimates. Earnings are also expected to go from just over $3 this year to a consensus of $4.50 a share next year.
- The stock is cheap at 7x forward earnings and less than 4x operating cash flow.
- The median price target of $41 a share held by the 13 analysts that cover the stock, is $10 a share above the current stock price. Credit Suisse has an "outperform" on the stock with a $46 price target. It also sees $5 in EPS for FY2015.
- The company has done a terrific job in growing operating cash flow (OCF) as it has increased OCF by approximately 600% since FY2009. Most of the company's production is oil and it further shifted in this direction with its 2013 budget where it postponed numerous new natural gas and natural gas liquid opportunities. It is going to partner with Exxon Mobil (XOM) instead on a joint venture to explore some promising oil acreage in the Gulf of Mexico.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EXXI over the next 72 hours.