Billionaire Steve Cohen's Big Bet On Oil & Gas
Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
|Forest Oil||Quicksilver Resources||Newfield Exploration||Pioneer Natural|
The major competition has also been struggling: Quicksilver posted third quarter results that saw top and bottom line results falling short of consensus estimates, with weak natural gas prices and low production levels being the major drags. Pioneer also posted below-expected EPS last quarter, with results falling on a year over year basis. Newfield, on the other hand, has been hitting on a number of cylinders, including better utilization from wells drilled in the Bakken and Eagle Ford. The oil and gas company expects to boost output by about 50% in the coming years. Getting back to Forest Oil, the company has robust exposure to natural gas, but now plans to diversify its production portfolio by expanding its liquid production. This includes focusing on Eagle Ford and the company's core acreage position. The shift will help not only drive the company's top line but also boost margins as its focuses on higher-margin oil development.
Although earnings are expected to remain below 2011 levels, when coupling its EPS with the industry average price to earnings the stock could well be undervalued. The industry average P/E multiple is around 30 times; put that multiple up against the 2013 expected EPS (Wall Street estimates) of $0.38 and the company shows over 60% upside. Furthermore, the industry trades at an average 8.8 price to operating cash flow multiple, whereas Forest Oil is at 2.5 times. It appears that concerns surrounding high leverage and over-exposure to natural gas are both being addressed by Forest Oil, and so some of the pressure on the stock might be overdone. Cohen is now one of the Forest's top fund owners, topping Owl Creek Asset Management, which owned 9.8 million shares at quarter end (see all the hedge funds loving Forest Oil).
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