Great Upside Potential In This Stock
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The rise in crude oil prices, gives investors a reason to rejoice, but adds worries for consumers. I believe that this crude oil trend will continue to delight investors, thanks to the falling Iranian oil exports. Iran’s oil production in August reached its 22 year low and according to the recent economic data, Iran’s exports shrank by 220,000 barrels/day, due to Western sanctions.
Additionally, Chinese crude imports saw a 9.1% spike on a monthly basis. India, on the extreme side, saw a 30% surge in crude imports in September. Iraq is trying to ramp up its production, but analysts believe that it won’t be able to cover the shortfall in supply.
EOG Resources (NYSE: EOG) is involved in the exploration, development, and marketing of natural gas and crude oil. As of Dec. 31, 2011, the company had proven reserves of 2.054 billion barrels of oil equivalent.
Natural gas saw a production boom in the North America, but European and Asian countries have yet to witness such a boom. There is a huge price difference in the natural gas pricing in the three regions, and to take advantage of this, the company owns a 30% stake in the Kitimat LNG export plant. Once completed, the facility would have the capacity to export 5 million tons of LNG.
In the recent quarterly results, the company reported net income of $395.8 million, which was up 33.8% from last year’s quarter. The EPS stood at $1.47 against the expected $0.93. The production of natural gas, liquids, and oil saw an upside of 49% on a YoY basis.
However the company is shifting towards oil production as the cost of operations in dry gas production is high. The CEO announced that it would be spending only 10% of its annual budget on dry gas. Mark Papa also went on to say that for profitable operations, the natural gas prices need to be above $5.5/ MMBtu mark. This is one of the reasons, for the stellar quarterly performance of the company.
EOG Resources shares its market space with Anadarko Petroleum (NYSE: APC), Chesapeake Energy (NYSE: CHK) and Devon Energy (NYSE: DVN).
|
Company |
Debt/Equity |
Gross Profit Margin |
EPS growth expected next 5 yrs. |
|
EOG Resources |
38% |
88.9% |
13.95% |
|
Anadarko Petroleum |
73% |
85.56% |
4.93% |
|
Chesapeake Energy |
82% |
84.94% |
7.78% |
|
Devon Energy |
48% |
79.37% |
6.47% |
The financial metrics show that EOG Resources enjoys the highest gross profit margin, along with the lowest debt to equity levels. The company ended the quarter with $280.374 million, and with comparatively low debt/equity levels, management won’t have to sell of its assets unlike most companies in the industry. Analysts expect the EPS of EOG Resources to grow at the fastest pace over the next 5 years.
With the company cutting down on its natural gas production, needless losses would be avoided. Since the long term prospects of natural gas look great, the reduced production levels, is only a temporary arrangement. With the ramp up in oil production, the company can take advantage of the rising oil prices. The company has an LNG export plant in development, and reported stellar quarterly financial performance. Additionally EOG has great fundamentals, and it is due to these reasons that we believe the stock is heading north.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of Devon Energy and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, short JAN 2014 $17.00 puts on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
