Oasis Petroleum: Analysts See Big Upside For This Bakken Producer

|
 |  About: Oasis Petroleum Inc. (OAS)
by: Bret Jensen

Regular readers of these columns know that I am a big bull on a good number of E&P concerns on the back of the huge domestic oil & gas production surge within the United States over the last 6-8 years. I own and have written extensively about a variety of smaller plays among these producers over the last two years. Bakken producer Oasis Petroleum (NYSE:OAS) is a stock I have owned and written about since April of last year.

Oasis is up better than 40% over that time frame to better than $43 a share. However, I still believe this fast growing producer has further upside. The company just made a significant purchase and has had received some very positive actions from analysts. It seems an appropriate time to revisit its investment thesis.

Recent Positives:

  • The company just acquired over 160,000 of additional acres in the Bakken for $1.5B. This ease concerns that Oasis would start to explore outside its core competency area of the Bakken and should give it some economies of scale. The company will now be producing ~43,000 BOE/D (Barrels of Oil Equivalent/Day) on almost 500,000 acres.
  • Oil prices approaching $110/Barrel on WTI is certainly positive for all domestic energy producers.
  • Deutsche Bank upgraded the shares to a "Buy" after the acquisition and raised its price target to $55 a share from $45.
  • RBC Capital raises its price target to $64 a share and moves the stock to "Outperform".
  • Suntrust states shares have more than 25% upside after purchase.
  • Raymond James called Oasis one of its top energy picks a month prior to this acquisition.
  • Finally, Jefferies tops all of them raising the price target to $68 a share and stating bull case calls for $80 price target.

Valuation:

The company was already tracking to better than 55% revenue growth this year prior to this latest acquisition. Analysts had penciled in over 25% sales increases in 2014 as well. Look for these estimates to be taken up substantially over the next few weeks as this new production is factored into the equation. The stock sports a tiny five year projected PEG (.50) indicative that the market may not accounting properly for its substantial growth drivers.

The stock is not expensive given its growth rate, selling for 12.5x next year's projected EPS (and look for this estimate to be revised up nicely by end of month as purchase is put into equation). The company has increased operating cash flow by more than 800% since the end of FY2010 and the stock sells at just ~7x trailing annual operating cash flow. BUY.

Disclosure: I am long OAS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.