XTO Energy: Volume Growth Expected In Underpriced Natural Gas

| About: XTO Energy (XTO)

Buy-recommended XTO Energy (XTO) offers unlevered appreciation potential of 15% to estimated net present value [NPV] of $70 a share, revised up with long-term oil price from $60 a share on May 29. Second quarter results reported on July 24 trace a rising trend in unlevered cash flow (Ebitda) driven by rising natural gas volume.

NPV for the large cap stock is concentrated 79% on natural gas and NPV looks low compared to our estimates for some thirty other producers. On the earnings conference call, Chairman Bob Simpson called attention to XTO’s price hedges that are protecting cash flow while natural gas pricing may be shaping up like the last half of 2006.

We note the trend in long-term natural gas price appears to be up by a slim margin compared to its 40-week average despite volatility of short-term quotes. Finally, XTO stock may be timely as it is below the 60-day average while retaining positive momentum above the 200-day average.

XTO 1-yr chart:
xto chart

Originally published on July 24, 2007.