SandRidge Energy (SD) is one of the most appealing investments in the E&P industry today. Investors interested in an asset with great growth potential at a price discount should consider SandRidge as an addition to the portfolio.
SandRidge has adequate financials on its balance sheet and a number of assets and ventures throughout the United States that make it one of the best candidates regarding high earnings potential for traders and investors in the near future. SandRidge is poised for short-term and long-term growth starting through the remainder of 2012.
SandRidge is currently trading for around $6 per share. This is only 10 percent of its all-time high price in the stock market more than three years ago when it was trading above $60 per share. The pricing for SandRidge has been relatively stable, since its stock price first plummeted more than three years ago. The current stock price is at the lower end its 52-week range from $4.55 to $12.36 occurring in 2011.
The current stock price is also below the 50 day and 200 day moving averages of over $6.50 and over $7.50, respectively. The current market rate exceeds $2.5 billion, but is less than half of its enterprise value. The five year projected PEG ratio is slightly above .10, while its beta routinely exceeds two. SandRidge currently does not offer shareholders a dividend. These numbers indicate that SandRidge has plenty of opportunity and potential for significant growth and, in turn, a rise in stock price.
The price to book ratio is around 1, while the price to sales ratio is around 2. The returns on equity and operating margin have both increased from the last three quarters from a loss in 2011 to a positive gain as of March 2012. Net margin took a significant dip at the end of 2011, but is back up over 15 percent as of March 2012. Sales growth has increased by over 20 percent from the previous year and increased by two percent from the last quarter.
The price is more than 20 times the earnings and exceeds the industry average. The net margin exceeds the industry average, while the return equity for Sandridge is below the industry average. The current ratio is around a half, while both the institutional ownership and gross margin both exceed 60 percent. The financials are somewhat of a mixed bag, but the discounted stock price and valuable asset make SandRidge a very appealing investment amidst the current competition.
There have been a few recent developments that indicate why SandRidge should be an appealing asset for any investors interested in the E&P industry. There have been significant insider purchases since March of 2012. Director Daniel Jordan added 50,000 shares to his portfolio back in April.
Wunderlich Securities has SandRidge as a buy right now. Analysts' earnings estimates for SandRidge are beginning to improve as the year progresses. Many analysts project 40 percent revenue growth for the remainder of 2012 and 30 percent sales growth for 2013. Many of these analysts have SandRidge's median price target at $10.
SandRidge's oil field acquisitions are among the major factors resulting in SandRidge posting a profit margin that exceeds 12 percent - which is one of the best in the industry. The profit margins are high, but stability and debt ratios are still somewhat of a concern. SandRidge increased its borrowing power to over $1.7 billion into 2017 in order to increase its asset portfolio and opportunity for growth. Acquiring Dynamic Offshore Resources will help SandRidge increase its oil production by 200 percent within the next few years. Similar to SandRidge, Dynamic focused predominately on shallow shore drilling and was able to accumulate over 62 mmboe. SandRidge has been quicker than the completion in focusing efforts towards LNG and oil production due to its expertise and foresight.
Sometime ago, SandRidge originally purchased land in the Mississippian formation for $200 per acre that is now worth over $4,000 per acre today. SandRidge was able to increase oil production by over 33 percent this year due to this acquisition. SandRidge also has an effective asset in the Permian Basin. This basin contributes to over 30 percent of SandRidge's daily production with an estimated volume of over 180 mmboe.
SandRidge also has 1.7 million acres and 8000 drilling locations in the Mississippian shale play. SandRidge has been able to effectively capitalize on its shallow drilling expertise for right now. Its high value assets for oil production provide an exit strategy for eliminating some of its debt issues as well.
SandRidge keeps adequate cash flow in order to capitalize on available acquisitions that can add to its particular portfolio model. Right now, SandRidge is successful in both oil and gas, but it focused mainly on increasing its oil production, while natural gas prices continue to rebound. SandRidge completed and began producing from over 200 wells within the first quarter of 2012. It also has more than 40 rigs currently operating, including five for drilling saltwater disposal wells. SandRidge has done remarkably well in its Mississippian and Permian Basin plays.
SandRidge has 68 wells in the Mississippian plays that have helped increase production by over 20 percent in Q1 of 2012. SandRidge plans to increase this production by over 30 percent in the second quarter. SandRidge has a total of 640 horizontal wells throughout Mississippi, Kansas and Oklahoma. SandRidge is preparing to add over 300 more horizontal wells to the Mississippian play before the end of the year. SandRidge has over 180 wells in the Permian Basin from the Q1 of 2012 and plans to add over 750 more wells throughout the remainder of the year.
SandRidge CEO Tom Ward was recently named as the Executive of the Year by Oil and Gas Investor Magazine. He credits SandRidge's success to efficient and aggressive acquisitions managed by disciplined operations of resources and production. SandRidge's expertise and success in the industry makes it a favored asset over Chesapeake (CHK).
SandRidge is highly undervalued in the markets, but its operations are on par with Kodiak (KOG), EOG Resources (EOG), Cabot (COG) and other competitors at comparatively premium pricing in the industry. Investors should cash in on this undervalued E&P entity before oil and natural gas prices begin to normalize through the remainder of the year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.