Earnings Scorecard: Talisman Energy

 |  About: Talisman Energy Inc. (TLM)
by: Zacks Investment Research

Late last month, Canadian energy explorer Talisman Energy Inc. (NYSE:TLM) announced its financial results for the second quarter ended June 30, 2010.

Now that the Wall Street analysts have had some time to digest the quarterly performance of Talisman, they are weighing in with their estimate revisions. Below we cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the outlook for the stock.

Earnings Review

On July 27, 2010, Talisman reported second-quarter 2010 results that came in better than expected, buoyed by higher commodity prices.

Earnings per share from continuing operations, excluding non-operating items, came in at 13 Canadian cents (13 cents), above the Zacks Consensus Estimate of 9 cents and in-line with the year ago profit. Revenue of C$1.6 billion was up 5.0% from the second quarter 2009 level.

Agreement of Estimate Revisions

The following table reflects a strong positive agreement among the analysts regarding Talisman’s outlook. In particular, we see a notable number of estimate revisions over the past 30 days, indicating that the revisions were in response to the company’s second quarter earnings release.

Out of 14 analysts covering the stock, 9 have revised upwards their estimates for 2010, while 3 have gone in the opposite direction. Looking forward to 2011, the trend is more or less similar. Out of 14 analysts, 8 hiked their estimates compared to 3 negative revisions.

This uptrend in estimate revisions reflects strong near-term financial results with the expectation that cash flows will be driven by higher energy prices, as well as operational and production efficiency.

Magnitude of Estimate Revisions

As a result of the analysts revising estimates over the past 30 days, the Zacks Consensus Estimates for fiscal 2010 and 2011 have both gone up 8 cents each, from 59 cents to 67 cents and from $1.07 to $1.15, respectively.

Our Recommendation

Despite the robust second quarter results, our short-term as well as long-term recommendations on Talisman remain Hold (Zacks #3 Rank) and Neutral, respectively.

The company has a high quality asset portfolio both in North America as well as globally. We are further encouraged by Talisman’s progress on its Marcellus growth objective and planned asset sales.

However, the company’s exposure to the highly cyclical and capital-intensive Exploration and Production (E&P) sector offsets these strengths and remains a key area of concern, in our view.

As a result, we maintain our cautious view on Talisman Energy shares.