Energy Partners: "Oversold" Stock

Buy-recommended Energy Partners (EPL) offers unlevered appreciation potential of 79% to estimated net present value [NPV] of $38 a share, revised up from $33 a share on May 29 when we raised long-term oil price to $66 a barrel from $60.

Second quarter results reported on August 8 disclosed a reassuring level of unlevered cash flow (Ebitda), considering the steep decline in stock price in advance of the report. At 2.8 times stock price, NPV for the large cap producer is supported by comparison to our estimates for other stocks in our coverage.

Explaining the rationale behind an announced stock repurchase authorization, Chairman Rick Bachmann declared that the “intrinsic value” of “oversold” EPL stock offered the classic “cheap oil on Wall Street.” Multiplying the McDep Ratio of 0.56 by present value of $32.60 a barrel implies a stock market value of $18 a barrel in the ground for EPL’s highly productive Gulf of Mexico resources.

Meanwhile the delivered price of oil over the next six years, currently $71 a barrel, continues in an uptrend. Some of the recent volatility in stock price can be attributed to a moderately high ratio of debt to present value now at 0.31, but down from 0.39 a few months ago.

Originally published on August 8, 2007.

EPL 1-yr chart: