The price of a stock is strongly correlated with its quarterly earnings. All companies have already published their third quarterly reports for 2011. It is high time that analysts emend their previous estimates based on the surprises in earnings from the quarterly reports. However, a positive surprise in earnings does not always mean that investors should start investing blindly as there are many other important indicators to look at. This brief study will give you an overview on five such companies in the energy industry that performed quite differently from what analysts had estimated, and will help you to make your own judgment with a cross sectional analysis of other factors.
Penn West Petroleum (PWE): PWE was selling at a price of $28 per share in the beginning of 2011, and this price got sliced off to less than half of that by the end of September. There had been several reasons behind this fall. PWE had been facing lots of operational problems like production cut off due to forest fire and poor weather conditions. Besides, this company has a poor debt management policy. In addition to all these, oil price fell to $80 at around the middle of 2011. Therefore, the analysts estimated earnings per share of $0.02 for this company in the third quarter. However, PWE exceeded that expectation by 1350% with earnings per share of $0.29 in the last quarter. Since, this share has a dividend yield of about 5% and its current price of $17 lower than its estimated fair value of $20 to $25, most of the analysts assume it is now an appropriate time to invest in this stock.
Petroleum Development Corporation (PETD): After hitting a 52 week low at a price below $15.08 in October, PETD had appreciated a lot. It is now selling at $32.36. This price appreciation occurred as a result of an enormous surprise in its earnings per share. Its earnings per share of $0.28 had exceeded the analysts’ estimate of $0.03 by about 833%. Besides, PETD had a strong growth in revenue and net income this year. Compared to its industry peers and S&P 500 PETD had performed quite well in these parts. However, this company is not so good with return on equity and debt management. Still, the analysts assume this stock is still below its expected value of $40.96 and investors should buy this stock as its next quarter’s earnings per share is probably going to be high if the oil price remains at the current level.
Alpha Natural Resources Inc (ANR): Due to negative demand trend from the Asian customers and rise in selling expenses, the industry of metallurgical coal had suffered from less net income, in spite of higher revenue on average. This had a severe effect on the stock price of as it fell from its 52 week’s high of $68.05 to a remarkably low price of $ 15.49 in the last quarter. The industry specialists also lowered their estimates about its earnings per share to only $0.04 for the quarter. However, ANR performed quite unexpectedly against this estimate with its third quarterly earnings per share of $0.35 for a surprise of about 700%. The recent increase in oil price and this earnings surprise have simultaneously pushed its stock price up. Since, the energy market is still extremely volatile and the demand is still at stake, analysts cannot guarantee a sure success with investment in this sector and especially not with companies that do not have a solid dividend payout history. However, analysts suggest the investors to hold this stock and take the next move based on future market direction.
BPZ Resources Inc. (BPZ): BPZ is one of the prominent earnings winners in the energy industry in the last quarter. In fact, it was only the last quarter when they actually made some positive earnings after losses in the first two quarters. However, this stock performed better than consensus’ forecast in the second quarter as well reporting no loss against earnings per share of -$0.01. In the last quarter, it outperformed consensus estimates by 150% as it reported earnings per share of $0.02 against analysts’ estimate of -$.04. However, you need to note that no dividend was given to BPZ stockholders in the recent years. Again, its beta value of 2.77 is much higher than the beta value of its industry peer Occidental Petroleum (OXY). Although its price to book value ratio of 1.24 is quite low compared to the industry average of 1.44 and S&P500 average of 2.41, most of the analysts assume that its poor performance will continue in 2012. Hence, analysts suggest selling the stock both in the short term and long term perspectives.
Flotek Industries Inc. (FTK): From a 52 week’s low price of $3.22, FTK is now selling at a price of $8.71 indicating a price appreciation of 128.98% in the past 52 weeks. However, this stock rose to a 52 week’s high of $10.77 in the middle of this year and fell in October. This mainly occurred because analyst estimated quite low earnings per share for this stock in the third quarter. However, it managed to outperform the estimates in the third quarter for a surprise of about 133% as their actual earnings per share for the quarter was a little higher than $0.2 against the estimated $0.10. FTK had a gross margin of 39.62% and an operating margin of 18.40%, which is much better than its industry average gross margin of 25.05% and operating margin of 7.27%. Since the stock had a revenue growth of 87.7% and a strong bullish trend in the recent past, some analysts still rates this stock as a ‘strong buy’. Some other suggests you to hold it a little longer as they are not sure if this stock will continue to soar.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.