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As regular readers of this column know, I am a big advocate of small energy producers in the shale regions of North America. I believe we are in the first couple of innings of an oil & gas revolution driven by fracking technology. I also believe there will continue to be an increasing amount of M&A activity as the majors find it easier to buy reserves on Wall Street than finding them in the field. I first wrote about Rex Energy (NASDAQ:REXX) back in the middle part of March when it was selling around $10 a share. The company just released earnings and gave production and other guidance on Tuesday. Although earnings were a bit disappointing, the production update and guidance should provide numerous positive catalysts for the stock.

Catalysts/Positives for REXX:

  • It exceeded it high case guidance for the quarter by 1% and now expects 67MMcfe - 72MMcfe/d for 2012.
  • The daily production rate increased 23% over the fourth quarter.
  • The company added 2800 acres in Ohio and spud its first well in the increasingly important Utica shale region.
  • Revenues from continuing operations came in 46% above the same period a year ago.
  • In addition to vastly increasing revenues, the company sees some expense decreases for FY2012. It lowered its Lease Operating Expense (LOE) estimates from a range of $50mm to $55mm to a range of $48mm to $53mm.
  • G&A expenses also fell by 6% from the same quarter of 2011.
  • Oil & Gas liquids accounted for 26% of production in the quarter and I would look for that ratio to increased consistently over 2012 as the company tilts its cap ex to these area from natural gas.

4 additional reasons Rex Energy has solid upside from $11 a share:

  • A couple of insiders made new buys in February and the stock has experience net insider buying over the past six months.
  • Analysts were expecting 40% or better revenue growth for both FY2012 and FY2013. Based on this latest update, I would look for these sales estimates to be bumped up slightly.
  • The 14 analysts that cover the stock have a median price target of $14 a share. Oppenheimer initiated the stock as an "Outperform" in April. My own expectation is this stock will hit $15 sometime in 2012 as it continues to expand production, especially oil & gas liquids. If natural gas prices show any price improvement, which would be "gravy".
  • Net income has been erratic for this company over the past few years. However, its operating cash flow more than tripled from FY2009 to FY2011.
Source: Rex: Why This $11 Energy Concern Is Headed To $15