Baker Hughes (BHI) reported earnings of $1.07 per share, surpassing the street’s $0.98 per share estimate. Given investor angst in the sector, it appears that companies must beat estimates markedly as well as raise guidance in order for their shares to significantly outperform the index. Overall, analysts are encouraged by the company’s plan to optimize returns in a capacity-constrained environment going forward. The steps the company is taking include alleviating its skilled labor shortage, investing capital in international expansion, raising prices, and buying back shares.
Chesapeake's (CHK) earnings of $0.82 per share exceeded the consensus street estimate of $0.72 per share as natural gas price realizations came in higher than estimates and production taxes came in lower than estimates. With the recent completion of the Four Sevens acquisition, the company continues to ramp up production and reserve estimates in the Barnett Shale. The play continues to be a primary focus for the company as management touted the strong economics in the area and note that they increased their expected reserves per well to 2.4 Bcfe with the potential to downspace below 40 acres. The company provided updated guidance for 2006 and 2007 that was mostly in-line with previous guidance. Notable exceptions included an increase in expected capital spending in 2006 and 2007 and slightly higher oil production for the second half of 2006 and 2007, offset by a higher expected diluted share count. Through an aggressive hedging program Chesapeake has largely eliminated commodity price risk for the remainder of 2006 and 2007.
J.P. Morgan upgrades Exxon Mobil (XOM) to "overweight".
J.P. Morgan cut its recommendation on Chevron (CVX) to "neutral''. The firm is saying the stock has risen disproportionately to those of peers. "We think it's time to throw in the towel as the company's earnings over the past few quarters have been disappointing".
Credit Suisse downgrades Allegheny Energy (AYE) to Neutral and ups their target to $44/45 from $41 based on concerns broadly about the group, valuation discipline, and view that a growing proportion of the opportunity being priced into AYE's shares is dependent upon exogenous factors (like regulators, permits, higher commodity prices) rather than value drivers in their hands (debt paydown, cost cutting, operational improvements).