The financial community is all abuzz today about the just announced upcoming IPO of tech favorite Twitter. Call me old fashioned, but the fascination with social media concerns trading at huge multiples of revenues escapes me at times, especially after the debacle of the Facebook (FB) IPO last year.
In more interesting news (to me), the leading Bakken energy producer, Continental Resources (CLR) revealed that energy production should increase this year by 38% this year which continues a string of double-digit increases over the past four years. The company also expects a 26%-32% increase in 2014 production based on non-acquisition capex of $4.05B.
I last profiled Continental in May when the shares were trading at $84 a share. CLR is now priced at $100 a share. With oil prices staying stubbornly above $105/barrel and with its impressive production growth, it is time to revisit the growth case for continuing to hold Continental Resources
Continental Resources produces crude oil and natural gas. It is the biggest producer of energy from the Bakken reserve where production is heading toward 1mm barrels of oil a day.
Five reasons CLR is still a solid growth play at $100 a share.
- The stock trades at just over 14x forward projected earnings. This is a substantial discount to the stock's five year average (27.7).
- In addition, consensus earnings estimates for both FY2013 and FY2014 have moved up 17-20 cents a share over the past two months. The company has also easily beat earnings estimates each of the last three quarters.
- Revenues are tracking to better than 50% gains this fiscal year and analysts expect a little over 25% increases in FY2014 (probably light given production guidance if energy prices stay at this level). The five-year projected PEG on CLR is under 1 (.53).
- The company is a cash flow machine. Operating cash flow has gone from ~$650 in FY2010 to over $2B in the trailing four quarters.
- 70% of the company's overall production in 2014 should consist of oil. Earnings after increasing some 60% Y/Y this fiscal year should jump more than 30% in 2014 based on the current consensus earnings estimates.