Encore Acquisition Still a Buy Despite Crude's Plunge

Sep. 9.08 | About: Erickson Air-Crane (EAC)

Encore Acquisition saw revenues soar 96% in the second quarter on the back of record crude prices. But even as crude prices have retreated, the company isn't a one quarter wonder. It has surprised on estimates 4 consecutive quarters by an average of 16.44%. Encore's forward P/E is 10.07.

Company Description

Encore Acquisition Company (NASDAQ:EAC) is an exploration and production company which drills onshore in North America.

Based in Fort Worth, Texas, Encore's properties are located in the Rockies, which includes the Dakotas, the Mid-Continent, which includes Oklahoma, and the Permian Basin which includes New Mexico and Texas.

In early May, Encore announced it was putting itself up for sale but in August, according to the Associated Press, the company said it was no longer looking to merge or be bought but instead would work to pay down its existing debt.

Encore Reports Record Revenues for the Second Quarter

On Aug 5, Encore announced second quarter earnings and surprised on estimates by 13.79%, or 20 cents a share. The company reported a net loss of $35.7 million or 68 cents per share compared to a gain of $15.2 million or 28 cents per share in the second quarter of 2007.

Excluding certain charges net income increased 449% to $88.6 million, or $1.65 per diluted share, from $16.2 million, or 30 cents a share, in the year ago period.

Revenues jumped 96% to a record $354.8 million from $180.7 million in the second quarter of 2007. The high oil and natural gas prices certainly attributed to the revenue growth. Average prices for the quarter rose to $102.03/BOE from $47.99/BOE a year ago.

Consensus Estimates Rise for the Third Quarter and Full Year

Despite the plunge in crude and natural gas prices, covering analysts are still bullish about Encore's outlook for the remainder of the year. Third quarter estimates are up in the last 7 days by 4 cents a share to $1.35 from $1.31. In the last 90 days, estimates are up 31 cents from $1.04.

For the year estimates are up 2 cents in the last month to $5.05 from $5.03 per share.

Value Fundamentals

Encore Acquisition is a Zacks #1 Rank (Strong Buy) stock. EAC has a forward P/E of 10.07. Its price-to-book is 2.91. The company also has a stellar five year average return on equity of 16.68%.