With Ultra Petroleum (UPL) continuing to struggle, down more than 50% off 52 week highs, I decided to take a closer look into the company to see if it is an attractive opportunity. Here are five points I looked at while researching UPL:
Valuation: Ultra's trailing 5 year valuation metrics suggest that the company is undervalued. Ultra's current P/B ratio is 2.6 and it has averaged 9.0 over the past 5 years with a high of 14.3 and low of 2.6. Ultra's current P/S ratio is 3.6 and it has averaged 10.3 over the past 5 years with a high of 19.3 and low of 3.6. Ultra's current P/E ratio is 10.7 and it has traded in a range between 10.7 and 46.0 over the past 5 years.
Price Target: The consensus price target for the analysts who follow UPL is $42.50. That is upside of more than 66% and suggests that the stock is undervalued at these levels and has room to run.
Forward Valuation: Ultra is currently trading at $25 a share and analysts expect the company to report earnings of $2.26 next year for a forward P/E of 11. Revenues are expected to rise 12.5%. Comparisons include Cabot Oil & Gas (NYSE:COG), Talisman Energy (NYSE:TLM), SM Energy (NYSE:SM), and Rosetta Resources (NASDAQ:ROSE). COG is trading for a forward multiple of 29 with revenues expected to grow nearly 49% next year. TLM is trading for a forward multiple of 11 with revenues expected to grow at 5% next year. SM is trading for a forward multiple of 19 with revenues expected to grow 40% next year. ROSE is trading for a forward multiple of 12 with revenues expected to grow 48% next year. Based on this valuation metric, Ultra is fairly valued as it is trading where the company with similar expected growth is trading at.
Earnings Estimates: Ultra beat earnings estimates the past 2 quarters after missing them the previous 2 quarters. Earnings have come in between 1 and 7 cents off consensus although the company's 3Q earnings were nearly 11% higher, or 7 cents, than consensus. If Ultra is able to beat earnings estimates by 7 or more cents, that should serve as a catalyst for the stock.
Price Action: Ultra was stable the first half of last year before falling apart in July. After trading between $44 and $48 most of July, the stock tumbled and fell as low at $24.39 a share in October before staging a brief rally to over $36 and falling apart again to is current levels of $25 a share. The stock is current below both its 50 day moving average, which sits just over $32, and its 200 day moving average which sits just below $39. On the upside, the $28-29 level should serve as resistance followed by the $30 level. On the downside, the 52 week low of $24.39 should serve as support.
Conclusion: Ultra seems undervalued on a trailing valuation basis as well as the analyst target but does not seem undervalued relative to what other companies in the group are trading at. This either means that the whole group is undervalued or the analysts and trailing valuation metric are off. I suggest staying away from Ultra here, as other companies in the group seem to offer better exposure to the oil exploration sector. Specifically, Cabot Oil & Gas (COG) and SM Energy (SM) are better bets on a growth basis, given that their forecast revenue growth clocks in at 49% and 40% for this year, respectively. In the short-run and on a relative basis, Ultra's unique exposure to natural gas will be a disadvantage.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.