Key Energy: A Keg Set To Explode

| About: Key Energy (KEG)

March was a good month for the market, with the S&P 500 up 3.3%. Unfortunately, it was not so kind on the energy sector, which was down more than 3%. I am still positive on the sector from a long-term view, given the high oil prices, solid demand and the need for increasing amounts of technology to reach harder-to-recover resources. One oil services company that seems undervalued is Key Energy Services (KEG).

Company description: "Key Energy Services, Inc. operates as an onshore rig-based well servicing contractor in the United States and internationally. The company offers rig-based services, including the maintenance, workover, and recompletion of existing oil and gas wells; completion of newly-drilled wells; and plugging and abandonment of wells at the end of their lives, as well as specialty drilling services to oil and natural gas producers." (Business Description from Yahoo Finance)

Six reasons Key Energy Services is significantly undervalued at under $16 a share:

  • The stock is cheap with a five-year projected PEG of under 1 (.78) and under 7.5 times forward earnings.
  • It is expected to have explosive EPS growth ahead of it. The company made 91 cents a share in FY2011. Analysts expect the company to make $1.65 a share in FY2012 before ramping up to $2.08 a share in FY2013.
  • Earnings estimates for FY2012 and FY2013 have moved up over the past two months
  • Insiders have bought over 600,000 in net new shares over the past seven months, albeit at mostly lower prices.
  • The mean analysts' price target for the 15 analysts that cover the stock is just under $21 a share, around 30% above the current stock price.
  • The company's revenue growth curve is impressive. Analysts have it pegged for over 25% percent sales growth in FY2012 and a 15% increase in FY2013.

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