Berry Petroleum Is Too Cheap After 20% Pullback

| About: Linn Energy, (LINEQ)

Given high current oil prices and the transition that many explorers are making by deploying assets to oil production from Natural Gas production, I think there is opportunity in some of the junior energy producers. Many have pulled back significantly over the last month or two on concerns on falling NG prices. One such producer to take a serious look at is Berry Petroleum (BRY)

7 reasons Berry has more upside from $44 a share:

  • 70% of Berry's production is oil, and oil production is growing at over 20% annually.
  • The company is using its capital expenditure budget to increase that ratio to 75% oil & liquids in FY2012. Moreover, it expects its margin to increase to $50/BOE from $45/BOE in FY2011 and just $30/BOE in FY2009.
  • After hitting $55 a share in early March, BRY has sold off some 20% and is now under analysts' price targets. The median analysts' price target of the 13 analysts that cover the stock is $62, about 40% above the current price.
  • The company more than doubled its operating cash flow from FY2009 to FY2011 and sells for just over 5 times OCF.
  • The stock is going for slightly over 8 times forward earnings, about a 45% discount to its five year average (14.7).
  • The stock has a cheap five year projected PEG (.17) and analysts expect 20% to 25% revenue growth for both FY2012 and FY2013.
  • Consensus earnings estimates have actually moved up for FY2012 and FY2013 over the last two months, even as the stock price has come down in the same time period.

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