On Jan 14, we downgraded independent oil and gas exploration
and production company,
Stone Energy Corporation
), to Underperform from Neutral. The company's negative earnings
surprise for the last three quarters, its lower price realization
and spiraling operating expenses compelled us to lower our
BREITBURN EGY (BBEP): Free Stock Analysis
CABOT OIL & GAS (COG): Free Stock Analysis
EPL OIL&GAS INC (EPL): Free Stock Analysis
STONE ENERGY CP (SGY): Free Stock Analysis
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Why the Downgrade?
Estimates for Stone Energy - which remains engaged in the
acquisition and subsequent exploration, development, operation
and production of oil and gas properties located primarily in the
Gulf of Mexico (GoM) - have been experiencing a downward trend
ever since it reported third quarter results on November 6.
The company's third quarter earnings per share of 50 cents missed
the Zacks Consensus Estimate of 53 cents. In fact, Stone Energy
has underperformed the Zacks Consensus Estimates for the last 3
quarters, delivering an average negative surprise of 11.3%.
Over the last 60 days, the Zacks Consensus Estimates for the
fourth quarter and 2012 fell 11.5% and 1.8% to 54 cents and $2.71
per share, respectively. The Zacks Consensus Estimate for 2013
has also dropped 9.7% to $2.14 per share during this period.
During the last few quarters, Stone Energy's earnings have been
adversely affected by lower price realization and higher
operating expenses. In particular, overall realization on a per
thousand cubic feet equivalent (Mcfe) basis was down almost 8.2%
year over year during the last reported quarter, while lease
operating expenses increased nearly 31% from the year-ago period.
Moreover, Stone Energy's results are heavily dependent on the
growth visibility of its onshore properties as well as outcome of
various deepwater exploration prospects.
Other Stocks to Consider
While we prefer to stay away from Stone Energy until we witness
improvements in its performance, there are certain stocks within
the oil and gas sector that are worth considering. These include
Cabot Oil & Gas Corp
EPL Oil & Gas, Inc.
Breitburn Energy Partners L.P.
). All three have attractive prospects.