The Long Case For Quicksilver Resources

It’s no secret that natural gas and crude stocks are on fire this year. Crude oil prices are at an all-time high and natural gas is following in the shadows. That being said, there seem to be great stocks that are still undervalued.

Quicksilver Resources (KWK), based out of Texas, is an exploration and production company specializing in natural gas and oil properties throughout North America. They are well known for their production of unconventional natural gas reserves including shale gas, coal bed methane and tight sand gas.

2007 Q4 earnings were released in late February and the company recorded net income of $396 million, compared to only $19.7 million for 2006 (see conference call transcript). The company has been in aggressive growth mode.

They recently acquired licenses to drill throughout 127,000 acres in NE British Columbia (.pdf warning for link). The company has identified Klua shale resources deep in the ground they will drill.

It's moves like these that make KWK unique within the industry. They have continuously chased unconventional gas reservoirs with great results. Most recently, the company saw stellar growth from its Barnett Shale gas resource in North Texas. Production from this play is expected to increase 150% this year.

Also, Quicksilver was recently upgraded to a “buy” target price of $50 per share by analysts at Canaccord Adams. With earnings for 2008 Q1 due on May 7th, expect KWK to announce another record quarter with a great forecast for the future.

From a technical standpoint, this stock looks great as well. It is currently in a wedge formation and a breakout looks eminent. The stock made a nice push on Friday, closing up 4%. Expect a nice bounce over the next few weeks and yet another if earnings are in line with analysts’ expectations.

Disclosure: Author has a long position in KWK

Comments

[Marol]

I have reason to hope you're right. However, I've seen more than one expert (mostly via marketwatch articles) saying that it's vulnerable to a "downside surprise," generally weaker, etc. (For example: www.marketwatch.com/ne...-- ) has concerned me a bit.

Also, what if earnings don't come in line -- does it drop and stay down, or come back up?

Would love to hear your ideas on this.