EPL Oil & Gas Inc.
) has been using acquisitions to expand its presence in the Gulf of
Mexico (GoM). Higher crude prices and increased production have
been a boon for this Zacks Rank #1 (Strong Buy) independent energy
exploration company, whose earnings are expected to rise strongly
in 2013. EPL - previously known as Energy Partners Ltd. - is not
just a growth stock though, as it also exhibits value with a
forward P/E of just 7.2 and a price-to-book (P/B) ratio of 1.8.
Liquids Output Drives Strong Q3
EPL reported third quarter 2012 non-GAAP earnings per share of 31
cents on November 1, 2012, beating the Zacks Consensus Estimate by
29.2% and the year-ago profit by 10.7%.
Results were driven by liquids volume (oil and natural gas
liquids), which was up 10.8% year over year to 8,901 barrels per
day (Bbl/d). EPL's output growth can be attributed to solid
performances from ongoing rig activities.
The company expects the uptrend to continue and projects liquids
volumes to hit 13,000-14,000 Bbl/d in the fourth quarter, going
further up to 17,500-18,500 Bbl/d in 2013.
Recent GoM Acquisition Adds to Long-Term
On October 31, 2012, EPL completed its previously announced
acquisition of certain shallow water GoM assets from privately-held
Hilcorp Energy GOM Holdings LLC for $550 million. The transaction
will increase EPL's proven reserves base by almost 100% to roughly
74 million oil-equivalent barrels (BOE), while boosting daily
production by some 80% to more than 20,000 BOE. According to EPL,
the Hilcorp assets hold an estimated 36.3 million BOE in proved
reserves (54% oil, 40% proved developed) and are currently churning
out around 10,000 BOE per day - about half of which is oil.
Earnings Set to Move Up Sharply
Based on the success of the company's acquire-and-exploit policy,
analysts are predicting strong earnings growth for EPL over the
year. The Zacks Consensus Estimate of $3.33 for 2013 represents
growth of almost 100% over 2012.
Shares of EPL soared in 2012, but remain cheap as earnings
estimates also went up. In addition to trading around 7.2 times
forward estimates (significantly under the peer group average of
18.1), the company has a price-to-book (P/B) ratio of 1.8, which
suggests that the stock is still undervalued. (A P/E below 15.0 and
a P/B ratio under 3.0 generally indicate value.)
Market Performance & Technicals
On the performance front, EPL's share price has comfortably
outperformed the S&P 500 during the past six months and has
delivered a return of around 34% during the period, versus just 9%
for the benchmark.
Analysts are increasingly bullish on the company, which is
reflected in their earnings estimates. In particular, with
incrementally increasing consensus estimates for fiscal 2012 and
2013, shares could continue climbing higher.
EPL is a GoM-focused upstream player that has attractive value
characteristics and remains well positioned to maintain a strong
earnings growth trajectory in the near- to medium-term. It is
engaged in the exploration and development of crude oil and natural
gas resources in the U.S. GoM shelf off the coast of Louisiana. The
company, based in New Orleans and Houston, is a smaller explorer
with a market cap of $940 million.
In addition to EPL Oil & Gas, there are certain other domestic
energy explorers and producers that offer value, such as Cabot Oil
& Gas Corp. (
), Breitburn Energy Partners L.P. (
) and Memorial Production Partners L.P. (
). All these firms are Zacks Rank #1 (Strong Buy) stocks.
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