Carrizo Oil & Gas, Inc.
) reported second-quarter results this month that included
year-over-year gains in EPS and revenue. This independent energy
company has been a Zacks #1 Rank (Strong Buy) since July 25. With
high quality assets, a long-term earnings growth projection of 28%
and a PEG ratio of just 0.5, Carrizo Oil & Gas looks like a
Impressive 2Q, Solid Liquid Transition Story
On August 7, Carrizo Oil & Gas reported second quarter 2012
adjusted earnings of 30 cents per share (including stock based
compensation), versus 20 cents a year ago. The result missed the
Zacks Consensus Estimate due to higher depletion, depreciation and
amortization expense, but the 50% year-over-year jump came from
substantial growth in its oil production as well as higher realized
This Houston-based energy company recorded adjusted revenues of
$92.0 million, up 70.1% from the year-ago level. Particularly
strong oil production volume of 693 thousand barrels (up 339% year
over year) was responsible for this stellar performance.
Carrizo Oil & Gas remains on track to shift its focus from the
Barnett Shale towards the emerging Eagle Ford, Marcellus, and
Niobrara plays, while changing the production mix to more liquids.
Oil production contributed 75% to its second quarter total revenue.
Meanwhile, third-quarter oil production is projected to grow 5%
The company also raised its full year total production guidance to
between 103.5 million and 106.5 million cubic feet equivalent per
day (MMcfe/d) from its prior expectation of 96-100 MMcfe/d. It has
a compound annual growth rate (CAGR) of 25% and 38% on its average
daily production level and proved reserves for 2003-2011,
Earnings Growth Prospect
Based on the premier acreage and the aggressive switch to more
oil/liquid production, analysts are predicting strong earnings
growth for Carrizo Oil & Gas over the next couple of years. The
Zacks Consensus Estimates are $1.73 for 2012 and $4.26 for 2013,
indicating robust year-over-year growth of approximately 140.3% and
Valuation Premium Warranted
Valuation for Carrizo Oil & Gas looks relatively expensive. The
current forward P/E of 14.5x implies a premium of 15.4% over the
peer group average of 12.6x. The premium valuation is warranted as
the company is likely to benefit from its JVs and asset sales.
Moreover, the current price to sales ratio of 3.6 remains slightly
below the peer group average of 3.7x, while the price to book ratio
of 1.8 reflects a 11.9% discount to the peer group average of 2.0x.
Moreover, the company has a PEG ratio of 0.52, a 48% discount to
the benchmark of 1 for a fairly priced stock.
Carrizo Oil & Gas has maintained its capital efficiency and
high return structure by developing shale plays through successful
JVs. In addition, the company continues to pursue several
monetization options for 2012, which would help it to pay down
Market Performance & Technicals
Although the stock showed a short span of volatility after reaching
its 52-week high of $31.62 on March 19, it has been above the
50-day moving average for about a month.
Going forward, Carrizo's outstanding organic growth in reserves and
production and near-term monetization are expected to act as
significant catalysts to its long-term earnings growth.
Founded in 1993, Houston-based Carrizo Oil & Gas is an
independent energy company engaged primarily in various shale plays
in the U.S. and U.K. Its operations are focused on the Barnett,
Eagle Ford, Marcellus and Niobrara. Additionally, it holds
interests in the Gulf Coast and North Sea oil and gas properties.
CARRIZO OIL&GAS (CRZO): Free Stock Analysis
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