Solid Earnings Report Should Bode Well For This Undervalued Energy Concern

May. 3.12 | About: Denbury Resources (DNR)

Earnings reports continue to come fast and furious. The energy sector has been a mixed bag as some of the refiners I own have consistently beat pessimistic estimates, while my energy producers have been all over the map. One of my E&P positions, Denbury Resources (NYSE:DNR), pleasantly surprised on the upside this morning. Based on recent events and this earnings report, the stock should be a solid pick for the rest of the second quarter.

Key Recent Events and Earnings Highlights

  • Adjusted EPS came in at 41 cents versus a consensus estimate of 38 cents a share.
  • Denbury's revenue rose 25 percent to $645.1 million.
  • Production rose 8% Q/Q.
  • Just announced it was acquiring 8400 acre Texas oil field for $360mm. The field currently produces 2,200 B/D has 17mm barrels of proven reserves. Given Denbury's history, I would expect both production and reserves to increase over the next 12-24 months. It also adds to the company's oil production which is already 93% oil.

Denbury Resources - "Denbury Resources Inc. engages in the acquisition, development, exploitation, and exploration of oil and natural gas properties in the Gulf Coast region located in Mississippi, Texas, Louisiana, and Alabama". (Business Description from Yahoo Finance)

4 additional reasons Denbury is a solid bargain at $19 a share:

  • It is over 30% below its consensus price target. The 16 analysts that cover the stock have a median price target of $26.50 on Denbury.
  • Consensus earnings estimates for FY2012 and FY2012 had already risen over the last three months. I would look for estimates to tick up on this latest earnings reports.
  • This is the fourth straight quarter that the company has easily beat earnings estimates and it sells for less than 11 times forward earnings, significantly below its five year average (20.2).
  • The company sells for around 6 times operating cash flow and has a very low five year projected PEG (.43).

Disclosure: I am long DNR.