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Synergy Resources Among Worst Hit by Cheap Oil: Dump It?

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On Mar 30, Zacks Investment Research downgraded leading oil and gas Exploration and Production (E&P) companySynergy Resources Corporation SYRG to a Zacks Rank #5 (Strong Sell). Post downgrade, the company is among the bottom 5% of all stocks that are ranked by Zacks.

Why the Downgrade?

Denver, CO-based Synergy Resources' business is dependent on commodity prices. Though all crude-focused stocks have been negatively impacted by the relentless fall in commodity prices, companies in the E&P sector have been the worst hit being unable to extract proper value for their products. Adding to the woes, the pricing environment is likely to remain soft during the first half of 2016. This should further increase pressure on the primary business of crude oil E&P companies like Synergy Resources.

Both oil and natural gas prices have been weak for a considerable length of time, primarily owing to a supply glut in the face of lackluster global demand. This weakness in commodity prices has adversely affected the company's financials. Notably, the odds of crude prices rallying in the near term remain bleak. Hence, we estimate the company to post a loss of 13 cents per share in 2016. Last year, Synergy Resources had reported a gain of 30 cents per share.

Detailed Analysis

Crude oil price has nosedived from the $100 per barrel mark and has kept sliding since Jun 2014 to the current trading level of around $38 per barrel. The incessant oil price slaughter has resulted in shares of many energy players tumbling to 52-week lows. Natural gas, on the other hand, is trading around $1.9 per MMBtu. This significant decline in commodity prices has adversely affected all the leading upstream players and Synergy Resources is no exception.

For fourth-quarter fiscal 2015, the Zacks Consensus Estimate was of a breakeven. However, the company reported a loss of 4 cents per share.

These bearish factors have recently prompted downward estimate revisions for the company. In fact, over the last 60 days, four analysts lowered their estimates for the current quarter. This resulted in the Zacks Consensus Estimate widening from a loss of 2 cents per share to a loss of 4 cents. Also, for 2016, 50% of the analysts have rendered negative estimate revisions on the stock over the same period. This has resulted in the Zacks Consensus Estimate widening from a loss of 1 cent per share to a loss of 13 cents.

Stocks That Warrant a Look

Some better-ranked players from the oil and gas E&P industry are Antero Resources Corporation AR , Vanguard Natural Resources, LLC VNR and California Resources Corporation CRC . While Antero Resources and Vanguard Natural Resources sport a Zacks Rank #1 (Strong Buy), California Resources holds a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

VANGUARD NATURL (VNR): Free Stock Analysis Report

SYNERGY RES CP (SYRG): Free Stock Analysis Report

ANTERO RESOURCE (AR): Free Stock Analysis Report

CA RESOURCES CP (CRC): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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