Denbury Resources (DNR) had a promising start to 2012 rising from just over $15 at the start of the year to over $20 a share at the close of February. Since then DNR could have well stood for "Do Not Resuscitate" as the stock continually drifted down to the $14 over the succeeding five months. However, the stock appears to have bottomed and pick up some recent catalysts as well. Brighter days should be ahead for the energy producer and I would not be surprised if the stock rises 40% over the next year to analysts' price targets.
Recent positives for Denbury Resources:
- The stock was upgraded to Buy from Neutral earlier by Stern Agee on Friday
- TheStreet also upgraded the stock from a Hold to a Buy last week and made it one of their Top Ten rating changes of the week.
- In early August, the company beat earnings estimates for the fourth quarter in a row.
- After falling for most of the last two quarters, consensus earnings estimates for FY2012 and FY2013 have increased over the last month.
"Denbury Resources engages in the acquisition, development, exploitation, and exploration of oil and natural gas properties in the Gulf Coast region located in Mississippi, Texas, Louisiana, and Alabama." (Business description from Yahoo Finance)
4 reasons DNR is still is undervalued at just over $16 a share:
- The company is second biggest enhanced oil recovery (EOR) firm in the United States trailing only Occidental Petroleum (OXY), which I also own and recommend. Denbury's massive CO2 reserves and recovery expertise give it a large advantage over competitors which should be more important as production slides in older wells.
- The mean analysts' price target by the 16 analysts that cover the stock is $23, implying roughly 40% upside from the current stock price.
- The stock is selling at less than 5 times operating cash flow, has grown OCF at more than 250% over the past three years and has increased proved reserves by 12% Y/Y as of last earnings report.
- The stock has recently broke out on the upside from a technical support range and just crossed over its 100 day moving average (See Chart).