On Sep 11, 2014, Zacks Investment Research downgraded natural gas producer, Ultra Petroleum Corporation ( UPL ) to a Zacks Rank #4 (Sell).
Why the Downgrade?
With August becoming the eighth consecutive record-breaking month of 2014 in terms of natural gas output, price of the commodity continues to suffer. From a peak of about $13.50 per million British thermal units (MMBtu) in 2008 to around $3.82 MMBtu now, the plummeting value of natural gas represents a decline of over 70% over six years.
In the absence of major production cuts, we do not expect much upside in gas prices in the near term. Hence, amid the weak natural gas pricing, we do not believe that Ultra Petroleum will be able to earn significant cash flows for its shareholders in the near term - as the primary business of the company is to produce and sell natural gas.
In the second quarter, the company's earnings also came in below expectations owing to higher operating expenses. Ultra Petroleum posted adjusted earnings of 52 cents per share, which failed to beat the Zacks Consensus Estimate of 54 cents.
Moreover, Ultra Petroleum is generating revenues, earnings and cash flow largely from the production and sale of natural gas and oil from its Pinedale and Jonah fields in Wyoming. Consequently, any significant downtime related to pipelines or processing plants in the region could affect the company's results.
All these triggered a downtrend in the Zacks Consensus Estimate. The downward estimate revision in the last 60 days resulted in a 20% decline in the Zacks Consensus Estimate for third quarter 2014 to 56 cents per share, whereas for 2014, the Zacks Consensus Estimate declined 7.7% to $2.75 over the same time frame.
Stocks That Warrant a Look
Better-ranked stocks in the same industry at the moment include WPX Energy Inc. ( WPX ), Emerald Oil Inc. ( EOX ) and Whiting Petroleum Corp. ( WLL ). WPX Energy sports a Zacks Rank #1 (Strong Buy), while Emerald Oil and Whiting Petroleum carry a Zacks Rank #2 (Buy).
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