Pioneer Southwest Energy Partners: This High Dividend Stock Is Oversold And Undervalued

Sep.14.12 | About: Pioneer Natural (PXD)

This article focuses on Pioneer Southwest Energy Partners LP, (PSE). PSE owns over 1100 wells in the Permian Basin area in West Texas and New Mexico, and boasts an 8%-plus dividend yield.

PSE is listed in the Energy section of our High Dividend Stocks By Sector tables.

After getting beaten up in the second quarter, Energy stocks have been on a roll since mid-summer, with the sector rising nearly 20% since late June. However, PSE hasn't come along for the ride, having fallen over 2.5% during the same period. PSE is currently oversold on its stochastic chart:

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PSE is slightly down for 2012:

Why? Analysts didn't factor in the effects of lower Oil & Gas prices in their earnings estimates for PSE, which resulted in an Earnings disappointment for the second quarter, even though PSE increased its earnings by over 14%.

Lower prices have also caused analysts to forecast negative EPS growth for Pioneer in 2012. But, when you look beyond 2012, into 2013, PSE looks undervalued on a Price/Earnings Growth, PEG basis, with a very low .40 2013 PEG:

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One of the main positives for PSE is that it has a favorable mix of Oil and Natural Gas Liquids vs. Natural Gas assets. In addition, PSE has been able to increase its Oil volume, which has also helped its bottom line:

In fact, PSE is one of the few stocks in this space that had solid earnings growth in the second quarter, AND also has good growth prospects for 2013 and over the next 5 years, resulting in an attractive long term PEG:

Dividends: PSE was formed in 2007, and, after its first distribution, of $.31 in 2008, increased its next quarterly distribution to $.50, and ultimately to $.52 in 2012:

Options: PSE does have call options and put options available, but they are very thinly traded. In addition, since PSE has such a high dividend yield, the risk/reward on a Covered Call trade isn't that attractive.

Financials: PSE has impressive Mgt. Efficiency and Margin figures. Although it carries a higher debt load, it has an Interest Coverage ratio of 8.52.

Disclaimer: This article is written for informational purposes only and isn't intended as investment advice.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PSE over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.