Small and mid-sized exploration and production (E&P) concerns have been some of the best performing equities in my portfolio over the past three years on the back of the continued huge domestic energy boom. I have scored multi-baggers in this space including Abraxas Petroleum (NASDAQ:AXAS), DiamondRock Energy (NASDAQ:FANG) and Warren Resources (NASDAQ:WRES) among a myriad of winning plays.
I took an initial stake in Callon Petroleum (NYSE:CPE) this morning at $11.75 a share. The company is a small (~$500 million market capitalization) independent oil and natural gas company focused on growing production and reserves from our oil-weighted multi-play, multi-pay assets in the Permian Basin. The company has been around since 1950 and is emerging as a significant growth play at current levels.
6 reasons to buy this fast growing Permian E&P play at under $12 a share:
- The company is posting impressive production growth. In 2013, Callon grew production 120% year-over-year to 3,500 BOE/Day (Barrels of oil equivalent/Day). Management has stated it sees several years of significant production growth ahead of it.
- The company should benefit as there are several significant pipelines and other infrastructure facilities being built in the Permian. This should lower the discount that Permian oil currently receives and improve margins.
- 80% of Callon's current production is oil which is selling at historically high prices and has been much less volatile than natural gas prices over the past several years.
- Earnings are going in the right direction. Callon broke even in FY2013 but is tracking towards over 50 cents a share of profit in FY2014. Analysts believe it will earn 75 cents a share according to the current consensus estimate. Earnings estimates have improved some ~50% over the past three months for both FY2014 & FY2015.
- The company has a solid balance sheet, is already nicely profitable on an operating cash flow basis and insiders have been net buyers of shares over the past year.
- Analysts are increasingly positive on the company. The stock has been initiated as a Buy or Outperform at Maxim Group and Imperial Capital in the last month. The company was upgraded at Noble Financial and Northland Capital in May. Most impressively, Stephen Berman at Canaccord Genuity reiterated his "Buy" rating on the stock today. Mr. Berman is in the top 100 of over 6,000 analysts and bloggers according to TipRanks. The return on his picks over the past three months is just under 13% according to this tracking service.
Disclosure: The author is long CPE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.