If you are looking for a small and inexpensive domestic energy
play as crude oil prices hold their own above $100 per barrel, it's
time to consider a $1.4 billion fracking company that has been
shifting its focus from natural gas to crude liquids. And the shift
has been showing up in the profits as you will see.
Carrizo Oil & Gas
(CRZO) is a Houston-based energy company actively engaged in the
exploration and production (E&P) of oil and natural gas
primarily in proven trends in the Eagle Ford Shale in South Texas,
the Niobrara Formation in Colorado, the Marcellus Shale in
Pennsylvania, the Barnett Shale in North Texas, and the Utica Shale
Carrizo has grown production and reserves over the last 8 years by
focusing on 3-D seismic controlled horizontal drilling -- aka
hydraulic fracturing, or "fracking." They are an industry leader in
horizontal technologies having drilled and completed hundreds of
extended reach wells in a number of different oil and gas shale
On August 7, Carrizo beat profit estimates by $0.06, with Q2
earnings of $0.61 per share, excluding non-recurring items. The
company also beat top line estimates and raised oil production
guidance. Including special items, CRZO still beat the Zacks
consensus estimate of 55 cents by a penny.
Revenues rose 60% year-over-year to $134.2 million vs. the $130.08
million consensus. Besides rising oil prices this year, the main
culprit in this revenue burst was increased production. The company
even surpassed the revised guidance it gave on June 17, less than
two weeks before the quarter ended.
Due to continued strong performance from Carrizo's Eagle Ford Shale
and Niobrara Formation assets, the company increased its 2013 oil
production guidance to a range of 11,100-11,500 barrels per day
(bpd) from 10,600-11,200 bpd.
Using the midpoints of these ranges, Carrizo's 2013 oil production
guidance essentially increased 5% to 45% annual growth. For the
third quarter 2013, the company expects oil production to be
Based on this continuous growth, over half of the eight covering
Wall Street analysts have raised earnings estimates for CRZO in the
past month, both before and after this report. Here's how one
prominent energy analyst summed up the view...
"As the company shifts its focus from the Barnett towards the
emerging Eagle Ford, Marcellus, Niobrara and Utica plays, we
believe Carrizo will see an impressive production growth profile
over the next few years while changing the production mix to be
more weighted towards liquids. We believe this growth coupled with
cash flow to cover anticipated capital needs will drive shares to
Established Big Caps, or Emerging Growth?
When I was hunting for an energy E&P this month, I looked at
many names I've traded before. Here are three familiar ones with a
favorable Zacks Rank in a recently strong industry group of 86
(Click image to enlarge)
While I like EOG as a leader in the space of domestic shale
fracking, and I dig the chart of COG cruising to new highs above
$39, I had to go with the "emerging growth" play and leave the
bloated big caps behind. They may have economies of scale that help
them in their industry in ways that elude the young upstart.
But when I look at these growth estimates, I know where I want to
put my energy money right now...
(Click image to enlarge)
And apparently more than a few institutional investors agree with
me. As of Q2 SEC 13-F filings, 97 funds increased their holdings of
CRZO with nearly 8.8 million shares added. This is against 82
portfolios decreasing their positions with 6.3 million shares sold.
Of the buyers, 30 money managers added 5.54 million shares, while
22 "sold out" for nearly 2.3 million shares. All in all, the net
institutional buying is why CRZO shares have gone higher this
summer. But it gets even better.
I track the big money on buys like this every week. And we had some
buying this month that is not reflected in those 2Q 13-F filings.
If you have a chance to check out a price chart of CRZO with daily
volume bars, you'll see four big accumulation days around CRZO'S
August 7 earnings report. August 6-9 averaged 965,000 shares per
day when the 90-day average is 750k.
Some of these "whale-sized" trades will be coming through as 13D or
G filings this week. And that's why, in full disclosure, I
purchased shares of CRZO for the Zacks Follow The Money portfolio
on Monday August 26.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs
Follow The Money
CABOT OIL & GAS (COG): Free Stock Analysis
CARRIZO OIL&GAS (CRZO): Free Stock Analysis
EOG RES INC (EOG): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis
SPDR-EGY SELS (XLE): ETF Research Reports
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