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Adams Resources & Energy (NYSEMKT:AE) is a small-cap oil & natural gas company headquartered in Houston, Texas and founded by Bud Adams, owner of the NFL Tennessee Titans. It has been one month since my initial SA article on AE when it was trading around $38, and for those who missed it, you may want to catch up here.

AE reported (a week early) on March 14th, and in oil industry jargon, had a "Blow Out" Q4, 2012 with earnings of $1.79 per share, up 58% from Q4, 2011. The stock closed at $45.60, up 10.5% on Friday, March 15th. I still believe, as I did when I acquired my position last October, that AE can be at least a $60 stock when the market recognizes its true value and here is why.

Oil & Gas Production Growth

The nation is in the midst of an oil & natural gas drilling boom that is expected to last for decades and advanced recovery methods (fracking) are producing record amounts of extractions per well.

A review of AE's latest Annual Report reveals that oil production was up 13.8% from 2010 to 2011, and 59.5% from 2011 to 2012. Natural gas production was up 38.8% from 2010 to 2011, and increased 37.6% from 2011 to 2012. Oil & natural gas "combined revenues" were up 28% in 2011 from the previous year, and 13% in 2012 from 2011.These patterns look promising.

The press release stated that AE partnered in the drilling of 109 wells last year with "no dry holes" and that new reserve additions during 2012 fully replaced all 2012 oil production on a barrel for barrel basis. This will surely bolster future revenue even if all other segments of AE's business enterprise remain static, which is unlikely given the projected 2% - 3% growth rate for the U.S economy in 2013-2014. Additionally, AE still has 237,000 acres of land with known reserves in 7 different states which should ensure its continued participation in the boom, for years to come.

Earnings Per Share Growth

AE's 5 year annualized EPS growth is nearly 17% and it is difficult to imagine that EPS growth will not continue, maybe not at 17% a year, but at some acceptable level. While I cannot predict the rate of future earnings growth, I will surmise, given the pattern of oil and natural gas production growth displayed above, that it will not be zero.

Multiple Expansion

Even with the big gain on Friday, AE is still trading at only 6.9x 2012 earnings of $6.59 per share. A 9.0 P/E ratio is a very conservative and entirely reasonable multiple for this stock given its 5 year average of 12.6, and a current industry average of 25x 2012 earnings. There is room and a solid argument for multiple expansion with AE.

Other Factors & Conclusion

AE operates debt free and is one of only a handful of companies in the industry doing so. Insider buying continues; and analyst sentiment is "very bullish."

All indications are that AE is tremendously undervalued and should be considered a significant alpha producing prospect. $60 per share is a totally reasonable target price for this stock and it is probably closer to the 52 week high of $75 as one analyst predicts, but I wish to remain on the conservative end of the spectrum.

As mentioned in my previous article, AE trades rather thinly and can have a wide bid-ask spread, so limit orders may be appropriate when entering or exiting this stock. AE has a relatively high 1.7 beta and can be volatile, so negative surprises can hurt your investment quickly. However, given all that I know about this company, it is difficult for me to imagine a negative surprise anytime soon, but consider protecting yourself with a "stop loss" order, just in case. As with any stock, there is the risk of capital loss so conduct your own research and speak with your investment advisor about AE.

Source: Adams Resources & Energy Looking Like The Energizer Bunny