Continental Resources, Inc. (CLR) and Hecla Mining Company (HL), both with strong sales growth and high margins, received upgrades from analysts recently. Recent developments will be updated for both companies. Both stocks will also be analyzed fundamentally and technically in this article. Investing strategies will also be presented.
Continental Resources, Inc.
Continental Resources, Inc., one of the largest oil producers in North Dakota's prolific Bakken shale, is an independent crude oil and natural gas exploration and production company with operations in the North, South and East regions of the United States. CLR was up 1.17% and closed at $91.15 on March 8, 2013. CLR had been trading in the range of $61.02-$91.89 in the past 52 weeks. CLR has a market cap of $16.92B with a beta of 1.81.
On March 8, 2013, JPMorgan upgraded CLR from neutral to overweight with a price target of $122.00. On March 4, 2013, investment analysts at Robert W. Baird increased their target price on shares of CLR from $92.00 to $102.00 with a neutral rating. Analysts currently have a mean target price of $99.13 and a median target price of $99.00 for CLR. Analysts, on average, are estimating an EPS of $1.10 with revenue of $760.63M for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $5.00 with revenue of $3.44B, which is 44.70% higher than 2012.
CLR had reduced the amount of natural gas it flared last year as reported by Reuters. As quoted, "Flaring involves burning off natural gas found while producing oil and is done mostly when there is no infrastructure such as gathering lines from a well in place to deliver gas to a pipeline which would then bring the gas to an existing market. The process can add more carbon dioxide into the atmosphere, which has been linked to climate change." As stated by the company, during December 2012, the percentage of our natural gas production flared in North Dakota Bakken was approximately 10 percent compared to approximately 20 percent in December 2011. Environmental and socially conscious investor groups are glad to see the improvements and hope other peers in the industry will follow.
There are a few positive factors for CLR:
- Higher revenue growth (3 year average) of 60.2 (vs. the industry average of -2.8)
- Higher operating margin of 50.2% and net margin of 28.7% (vs. the industry averages of 24.9% and 13.1%)
- Strong ROE of 27.0 (vs. the industry average of 8.7)
- CLR generates an operating cash flow of $1.63B with a levered free cash flow of $585.14M
Technically, the MACD (12, 26, 9) indicator is showing a bullish trend, and the MACD difference continues to diverge. The momentum indicator, RSI (14), is picking up and indicating a strong buying momentum at 67.35. CLR is currently trading above its 50-day MA of $82.46 and 200-day MA of $74.87, as seen from the chart below.
How to Invest
With solid growth and strong margins, CLR is an attractive growth company to invest. There is still more upside potential as the company continues to increase its topline sales. For bullish investors, a credit put option spread of June 22, 2013 $75/$80 put can be reviewed to gain upside credit premium or to acquire CLR stock at a price below $80.
Hecla Mining Company
Hecla Mining Company is a leading low-cost U.S. silver producer. HL was up 4.17% and closed at $4.25 on March 8, 2013. HL had been trading in the range of $3.70-$6.94 in the past 52 weeks. HL has a market cap of $1.21B with a high beta of 2.18.
On March 8, Global Hunter Securities upgraded HL from neutral to buy with a price target of $6.25. Analysts have a mean price target of $5.99 and a median price target of $6.25 for HL. Analysts, on average, are estimating an EPS of $0.06 with revenue of $92.45M for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $0.34 with revenue of $458.58M, which is 42.80% higher than 2012.
On March 4, 2013, Hecla Mining Company announced that it has entered into a definitive arrangement agreement with Aurizon Mines Ltd. (AZK) pursuant to which Hecla will acquire all of the issued and outstanding common shares of Aurizon in a transaction with a total value of approximately CAD $796M (USD $774M). Hecla's President and Chief Executive Officer Phillips S. Baker, Jr. stated,
"Hecla and Aurizon together create a unique precious metals company with three long-life, high-grade, low-cost mines in some of the best mining jurisdictions in the world. These three properties have in common strong exploration potential on very large and contiguous land positions as well as locations near communities that are supportive to mining. In addition, all three utilize similar mining methods enabling Hecla to leverage the knowledge and experience from each mine across the organization. Hecla's expertise in operating low-volume, high-value mines complements these assets, resulting in a value-added proposition for Hecla and Aurizon shareholders."
There are a few positive factors for HL:
- Higher operating margin of 11.8% and net margin of 4.5% (vs. the industry averages of 11.5% and 3.6%)
- Lower Forward P/E of 8.8 (vs. the S&P 500's average of 13.9)
- HL has a total cash of $190.98M and a total debt of $17.50M. HL has a book value of $3.99.
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, but the MACD difference converged in the last trading day. RSI (14) is moving out of the over-sold territory at 30.59. HL is currently trading below its 50-day MA of $5.31 and 200-day MA of $5.36. The next support is $3.98, the S2 pivot point, as seen from the chart below.
How to Invest
With robust sales growth, high margins, and low Forward P/E, HL is a buy at the current price, which is supported by its book value of $3.99. According to an insightful analysis from a reputable SA contributor, the Value Investor, shareholders are overreacting to the Aurizon deal and underestimating the long-term benefits for this acquisition. For bullish investors, a credit put option spread of June 22, 2013 $3.5/$4.5 put can be reviewed. Investors can also review the following ETFs to gain exposure to HL:
Note: All prices are quoted from the closing of March 8, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HL over the next 72 hours.