Denbury Resources: Undervalued Energy Stock Still Has Further Upside

| About: Denbury Resources (DNR)

Brent Crude remains stubbornly above $120 a barrel. Gas prices also continue to increase. This should start to impact consumer spending in the summer as the tailwinds from low natural gas prices which benefited consumers immensely over winter dissipate and gas prices rise further during driving season. Although negative for consumers and a headwind for the market overall, this should continue to be good for energy stocks. One undervalued stock that should benefit from these continued high energy prices is Denbury Resources (NYSE:DNR).

7 reasons DNR is undervalued at $19 a share:

  • The mean price target on the stock by the 19 analysts that cover it is around $26 a share.
  • The stock is selling near the bottom of its five year valuation range based on P/B, P/E, P/S and P/CF.
  • The stock is cheap with a low five year projected PEG (.48) and is selling at just over 6 times operating cash flow.
  • The stock looks like it has bottomed, is showing increasing technical strength, crossed over its 200 day moving average recently and still has plenty of room to run to hit its highs from last year (See Chart).

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  • The company has easily beat earnings estimates for three straight quarters and consensus earnings estimates have moved up significantly for FY2012 and FY2013 over the past few months.
  • The company owns the largest reserves of CO2 east of the Mississippi river. This is an important input for tertiary oil recovery.
  • The company has tripled revenues since FY2006 on acquisitions and growth in production. It reserves are also over 80% oil, lessening the impact of low NG prices.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DNR over the next 72 hours.