Interest in Producers Rises With Oil Prices
As oil hit a nine-year high Friday, closing at $30.35 a barrel, analysts from St. Louis brokerage A.G. Edwards drilled into the energy sector to recommend several stocks. Their picks and comments:
* Callon Petroleum (ticker: CPE; Friday close: $13; estimated per-share earnings for 2000, according to Bloomberg News: 36 cents): “Callon is a small exploration and production company that operates almost exclusively offshore in the Gulf of Mexico. During the past few years, Callon has shifted part of its emphasis from the Outer Continental Shelf to the deep waters of the Gulf of Mexico, with the goal of significantly increasing proved reserves. In 1999, this strategy paid off and Callon reported a 100% year-over-year increase in proved reserves. However, we believe the stock remains undervalued.”
* Enterprise Products Partners (EPD; $19.31; $1.68): “EPD services natural-gas-liquids suppliers and the petrochemical companies by splitting NGLs into their basic components. Nearly 70% of the company’s cash flow is derived from a stable fee-based business, while the remaining 30% emanates from natural gas processing and spot-liquids sales. Future growth will come from processing increased volumes of rich natural gas and the selective acquisition of midstream energy assets.”
* Halliburton (HAL; $33.69; 98 cents): “As the world’s largest oil-field service company based on revenue, Halliburton is well-positioned to benefit from the recovery in capital spending. A large backlog of $9.5 billion, and additional large awards pending, support our belief that Halliburton’s business is improving. In addition, the sale of interests in two joint ventures reduces Halliburton’s exposure to the equipment business and strengthens the company’s balance sheet. As it is trading at a discount to its major competitors, Baker Hughes and Schlumberger, we believe Halliburton’s valuation is attractive.”
* Talisman Energy (TLM; $24.81; $1.90): “Talisman is a Canadian-based international exploration and production company with significant operations in western Canada, the North Sea, Indonesia and Sudan. Talisman is currently trading at [a modest valuation relative to its peers], despite the company’s projected per-share cash-flow growth of more than 30%, which is at the top of the group. Given Talisman’s highly visible near-term production growth and increasing leverage to strong oil prices, we believe the stock is poised to strengthen further.”
* Texaco (TX; $46.38; $3.36): “Texaco is currently our favorite play in the integrated oil industry. The company’s conservative stance, strong balance sheet, attractive development opportunities, excellent downstream assets and quality management team combine to make Texaco a premier play. In addition, Texaco has the highest level of exposure to our revised forecast for the price of oil than any of its peers. Texaco currently trades at a very attractive 13.2 price-to-earnings multiple to its $3.51 earnings per share estimate versus a peer group average of [about 19].”
