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  • Superb Earnings Visibility Dwarfs Valuation Concerns In ENSV And GSJK 0 comments
    Jul 12, 2014 3:25 PM | about stocks: ENSV, GSJK

    As it gets difficult to find attractively priced assets with soaring valuations, an investor's best bet is to try and gaze into future earnings. This approach particularly works best in emerging industries such as the oil and gas industry where growing top line in double digits is a norm rather than exception. Companies with proven records and strong balance sheets such as Enservco Corp (NYSE: ENSV) and Compressco Partners LP (NASDAQ: GSJK) may be best suited for investors.

    Enservco Corp offers oil field services to the domestic onshore oil and natural gas industry. The company operates a fleet of more than 230 specialized trucks, trailers, frac tanks and other related equipment in major oil and gas fields including the Bakken field, the Marcellus and Utica Shale fields, the Green River and Powder River Basins and Hugoton fields.

    The company's operations, although limited to just the United States, have been growing in a solid way. It posted a top line of $18.6 million in 2010 which grew massively to $46.5 million in 2013. In the same time frame, it transformed from being a loss making company to one with a profit of $4.3 million last year. As net profit margin of 9.2 percent isn't very high, there is ample scope of upward revision in this. In fact, this trend is already underway as profitability went on to 16.6 percent in the latest quarter ended March. In the same period, its revenues jumped 35.9 percent to $25.2 million. As such, the price earnings ratio of 27.3 for the last 12 months does not appear steep. On the contrary, it drops to a rather attractive 9.8 for a forward basis while debt by equity ratio sits comfortably at 0.8.

    This fantastic visibility in earnings growth won it a 'buy' recommendation from analysts at Eurobank EFG which initiated coverage earlier this month. EuroPacific Canada has also put a 'buy' rating on the stock with a price target of $3.6 per share.

    Another growth oriented oil and gas equipment company is Oklahoma based Compressco Partners LP. The company, which offers wellhead compression-based production enhancement services, is valued at 24 times its trailing 12 months' earnings. However, this valuation drops to 16.4 when future earnings are taken into consideration. Investors may also like the fact that apart from earning strong profits, the company has been consistent in distribution of the same as well. Dividend per share increased steadily through the last three years. At current rate of 44 cents per share per quarter, annual dividend yield works out to a mouthwatering 6.7 percent. With Compressco Partners, investors also get an exposure to geographic diversity as the company continues to expand its operations in Mexico, Canada and increasingly in certain countries in South America, Europe and the Asia-Pacific region.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: ENSV, GSJK
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