Another Cheap, Fast Growing Energy Producer Worth Considering

| About: Carrizo Oil (CRZO)

The energy sector continues to recover from a disastrous second quarter. In fact, energy stocks are some of the best performers in the third quarter so far, as oil prices continue to rise and natural gas seems to have bottomed at $2mmbtu earlier in the year. That being said, stocks in the sector are still down from their previous 2012 highs. Many are cheap given their valuations and growth prospects. Carrizo Oil & Gas (NASDAQ:CRZO) is a good example of a fast growing producer trading at historically cheap valuations.

"Carrizo Oil & Gas is an independent energy company that engages in the exploration, development, and production of oil and gas in the United States and the United Kingdom. The company holds interest in crude oil and liquids plays in the Eagle Ford Shale in south Texas; the Niobrara Formation in Colorado; the Utica Shale in Ohio and Pennsylvania; and the Huntington Field in the U.K. North Sea." (Business description from Yahoo Finance).

Here are seven reasons I believe Carrizo has further upside from $25 a share:

  1. The stock is cheap at less than 6 times forward earnings -- a steep discount to its five year average (18.7).
  2. Since FY2003, Carrizo has grown reserves at a 38% annual clip and increased production by 25% annually. Over 75% of its FY2012 is allocated to its oil rich Eagle Ford acreage.
  3. The stock is selling near the bottom of its five year valuation range based on P/S, P/B and P/CF.
  4. The company grew oil production 91% Q/Q in 1Q2012, and oil sales now make up more than 70% of its overall revenue.
  5. Analysts are projecting greater than 60% revenue growth for both FY2012 and FY2013. The stocks sports a five year projected PEG of under 1 (.43)
  6. The mean price target for the 15 analysts that cover the stock is $33 a share.
  7. The stock recently bounced off long term support levels, and is just about to cross its 200 day moving average. See chart below:

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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CRZO over the next 72 hours.