GeoResources - Momentum
06 Fevereiro 2012 - 10:00PM
Zacks
GEOI 020612
GeoResources (GEOI)
The harsh reality
is that our nation cannot survive without oil and natural
gas. Alternatives such as wind, solar and geothermal are all
potential sources of energy, but for the moment they are not
viable, cost effective or scalable enough to replace king oil.
For the time being, our dependence on black gold is growing
and even though natural gas prices are at lows, prices are getting
some support here and should rise over the long term.
President Obama also vowed to open a good part of our soil to oil
and gas drilling operations which is where GeoResources may stand
to profit.
Company Description &
Developments
GeoResources is an independent oil and gas company that is in the
business of acquiring and developing land through different
programs; from purchasing existing reserves to re-engineering,
development and even good ole’ fashioned exploration. This
mix allows stability in their low risk inventory, while exploring
upside in and around existing fields and new formations.
Their business is
focused in the Southwest and Gulf Coast along with the Williston
Basin. They also have growing leaseholds and operations in
the Bakken and Eagle Ford formations.
60% of their
reserves (and revenue) are currently in oil and the balance in
natural gas.
The key to their
success will be the strong margins they are enjoying with elevated
oil prices, which are expected to stay around the $100 mark or
greater, especially if US economic health is indeed
improving.
On the natural gas
side, they can improve profitability if natural gas prices rebound
here. But even with depressed natural gas prices, their
overall profit margins look good.
- Over the past five
years, gross margin peaked at 77.1% and averaged 70.6%.
Operating margin peaked at 35.1% and averaged 24.1%.
Net margin peaked at 29.8% and averaged 18.2%.
- TTM gross margin is
73.7%, 310 basis points better than the five-year average.
TTM operating margin is 39.6%, 1,550 basis points better than the
five-year average. TTM net margin is 25.5%, 730 basis points
better than the five-year average.
Recently,
GeoResources successfully completed drilling its fourth Eagle Ford
well at a cost of 3 million. They noted that they were able
to significantly reduce drilling costs and time on this well and
indicated this to be the trend moving forward on average.
They expect to spud
(start) between 21 and 24 gross wells at Eagle Ford alone in 2012,
which should net about 9 producing wells. All of which
contributing to profitability if they can be drilled efficiently
and if oil prices remain stable. Obviously, GEOI intends to
spark more growth outside Eagle Ford as well.
Financial Profile
GeoResources is a small-cap (822 billion) company that is trading
at about 26 times trailing earnings (P/E). Looking forward,
Zacks Consensus Estimates are calling for that number to drop
closer to 16 with no change in price over the next year.
GeoResources
jumped from a Zacks Rank 3 to Rank 1 on the 10th of January and has
been between a 1 and 2 before its recent upgrade to a strong buy on
Jan 31st.
The oil and gas
company reported a quarterly sales increase of 20% at their last
earnings report. Annual sales were up 38% compared to 2010
with total sales of roughly 107 million in FY2010. GEOI
earnings declined about 5% year over year when they reported Q32011
a couple months ago. GeoResources is expected to earn $1.33
in FY2011 according to the Zacks Consensus Estimate.
Earnings Estimates
Analysts have been all over the board with their revisions over the
past 30 days, but the majority are moving estimates higher for the
coming quarters as well as FY2011 and FY2012. Predicting oil
prices and producing wells can be a daunting task for any analyst
and these mixed revisions are common on smaller drillers like
GEOI. GeoResources will report Q42011 results on March
13th.
Expectations are
for GeoResources to generate $0.37 in income this quarter. Of
the 14 analysts who cover GEOI, the consensus is for the company to
grow earnings by 6% in the current year (FY2011) and roughly 49% in
FY2012.
In terms of the
magnitude of analyst estimate trends, we are seeing most of the
consensus estimates higher than they were 90 days ago for Q22012
out to FY2012. The consensus for Q42011 earnings is flat
compared to estimates 90 days ago.
GeoResources beat
estimates last quarter by 9.09% and by almost 7% in the quarter
before. The stock did miss by 21% in final quarter of
2010.
Market Performance & Technicals
Before we look at performance, it’s important to note the lower
volume of GEOI. This lack of heavy trading can cause slippage
in the shares when you are buying or selling, so use caution.
Aside from the
volume, GEOI has more than doubled in value since mid-October when
it hit a low of almost $14. GeoResources’ meteoric rise
from that level certainly makes it a momentum stock. Recently, we
have seen some consolidation and a breakout from the $31 mark,
which I would look to for support and a buy level.
The stock remains
above its 50 and 200 day moving averages of $28.88 and $24.75
respectively.
While the trend
remains bullish, there might be a short term pullback in the cards
as the stock is a bit overbought there. GEOI has
exceeded the S&P 500’s performance by over 9% in the past year
and over 6% in the past month. All in all it was a very
volatile year for GEOI.
Jared A Levy is the
Momentum Stock Strategist for Zacks.com. He is also the Editor in
charge of the market-beating Zacks Whisper Trader Service.
GEORESOURCES (GEOI): Free Stock Analysis Report
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