Callon Petroleum: Crushing Estimates

Earnings are soaring at Callon Petroleum as crude and natural gas prices rise. The company has surprised on estimates each of the last four quarters by an average of 112.13%. Even though the stock has been on a run in recent months, Callon trades at only 6.67 times forward earnings.

Company Description

Callon Petroleum Company (CPE) is an oil and natural gas exploration company with properties in the Gulf Coast region.

CPE, a Zacks #1 Rank (Strong Buy), operates predominantly in Louisiana, Alabama and offshore in the Gulf of Mexico.

Like many of the exploration companies, Callon's strategy is to enhance shareholder value by growing production, its reserves and cash flow. Recently, the company has changed its growth emphasis from acquiring producing properties to acquiring acreage that can be developed and explored.

Callon pays no dividend, preferring to use its cash flow for exploration opportunities.

Callon Petroleum Crushed Wall Street Estimates by 150% in the First Quarter

On May 7, Callon Petroleum reported first quarter earnings that surprised on estimates by 150%, or 21 cents per share. Net income rose 25% to $7.6 million, or 35 cents per share, compared to $5.8 million, or 27 cents per share, in the first quarter of 2007. Analysts had expected only 14 cents per share.

Oil and gas sales totaled $45 million from production of 42.1 million cubic feet of natural gas equivalent per day (MMcfe/d) compared to sales of $45.5 million from production of 60.3 MMcfe/d during the first quarter of 2007.

Average prices on natural gas and crude are soaring compared to 2007. The average natural gas price rose $9.50 versus $7.97 in 2007. Average crude oil prices jumped to $86.66 from $55.53 in the year ago period. The average prices reflect the company's hedging strategy.

CPE Provides Production Guidance for the Second Quarter

On May 7, the company issued production guidance for the second quarter of a range of 36 to 40 million cubic feet of natural gas equivalent per day (MMcfe/d). For the full year, the production forecast calls for a range of 41 to 45 MMcfe/d.

Consensus Estimates Rising for the Second Quarter and the Full Year

As crude prices continue to move higher, consensus estimates have been rising. In just the last 30 days, estimates for the second quarter are up 13% to 43 cents from 38 cents per share.

For the full year, estimates jumped 20% in the last month to $1.72 from $1.43. Consensus estimates for the full year rose 79% in just the last 90 days.

Analysts estimate year-over-year earnings growth of 142.72% in 2008.

Value Fundamentals

Callon Petroleum's forward P/E is only 6.67. Its price-to-book is 1.66, well under the industry average of 3.02.