It is a bit alarming that ATP Oil & Gas (ATPG) has failed to meet its financial requirements for the first quarter of 2012 by a net margin of 2460 basis points worse than the previous quarter. Bad reports like this should be a cause for concern for all investors, especially when you look at how ATP's competitors are performing at the moment.
As this puts things in perspective, let us begin by investigating some of these competitors. Energy Partners (EPL) has just been upgraded to a buy rating by TheStreet Ratings from its previous hold rating. The upgrade is a result of the company's "robust revenue growth, good cash flow from operations and expanding profit margins." This is in spite of the fact that the stock's performance is not very impressive. It is surging right now, but this is probably because there is now a positive sentiment from a rating agency. As a result, this increase may only be temporary, and this may change for the company in the future.
Energy Partners is not the only company ATP must fend off due to a good rating though. Contango Oil & Gas (MCF) has just been given the same upgrade from hold to buy by TheStreet Ratings. The reason for this is that the company has shown an ability to expand profit margins over time despite its subpar growth in net income. The fact that it is cheaper than most of its competitors is a good sign that investors will try to acquire the stock, as it is probably undervalued right now. Much like Energy Partners, it will likely see increases due to the positive sentiment as well.
While it is not TheStreet Ratings that gives the buy rating this time, Cimarex Energy (XEC) was upgraded by Societe Generale in a note last Tuesday. This is because it just slipped from the analyst consensus estimate by $0.04, which is not bad at all for the company. This is another stock that investors who are looking for oil companies might want to consider. There is something I must discuss, however, that could be classified as buyer beware. The stock has a 52-week low of $50.80 and a 52-week high of $96.41. This is scary for those that cannot handle the volatility of stocks. This company goes very low when it is low and very high when it is high. If you cannot sleep with this kind of change, do not consider it at all, despite the buy rating.
In an annual meeting of stockholders, major competitor Stone Energy (SGY) has recently decided to appoint David H. Welch the Chairman of the Board, who will also retain his positions as CEO and President of Stone Energy. This does not seem like that big of news. When you consider that the CEO, the President, and the Chairman of the Board is all one man, however, you also realize that decisions from the top will be coming from one man, and the board that ratifies those decisions will be led by the same man. Such control is scary and may be an idea that investors want to consider before investing in this company.
Going back to ATP, we already discussed how it did not meet its requirements in terms of revenues, but there seems to be some positive news as well. A recent report says that the company is in the process of acquiring and producing oil and natural gas properties in the Gulf of Mexico and other places. There seems to be an issue with how this strategy might not be very effective though, as other companies have already passed on the properties ATP is taking on.
Not only is this a questionable move on the company's part in its attempt to recover, but the damage might already be beyond repair. Pritchard Capital recently cut its target price on the shares of ATP based on the grisly quarter-one performance of the company. This is not surprising, and analysts will probably continue to cut down this company until it can prove its ability to recover. ATP has stated that it has operations, and the company attempts to explain its failure to meet all of the expectations that it set. The very fact that it needs to defend itself, however, is enough to make investors wonder how stable this company is. I would suggest watching how things develop with ATP's new properties, but this may have a limited impact on helping the company recover.
Do analysts think people be convinced by the company's efforts? It seems that there is a hung jury when it comes to this. Some take a stance, claiming ATP has a good chance to recover. Many, however, continue to debate the issue. Even when betting on the recovery, it is contingent on the success of ATP's efforts to improve production. This is a case of the experts not agreeing and butting heads over a single topic, but the reason is that it is so difficult to tell.
What should investors do in light of all of this data? Well, the decision should be clear by this point. Jump ship, and do it now. There are other companies within the same industry that can give you better results. Even if the industry itself is doing well, the consensus is that since ATP has so much to recover from, it is not something you would want to keep in your portfolio. As a result, I think stockholders should get out now and trade up for another company that is worth the money and will give better returns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.