Yes, all the problems have gone away now. The insiders are buying! Yay!!! Except they're not. People who can't distinguish between options exercises and stock buys are the same people who can't read balance sheets. But let's assume these insiders actually went out and spent $1.5mil on stock. Does it really mean anything? No. It's less than 140,000 shares, which is less than 0.07% of the daily volume for one day. And any experienced trader knows that insider buying is not indicative of anything.
One sad truth: Annual dividend (for now): $1.08. EPS: $0.78 Who needs a calculator to figure it out? Management has demonstrated that they are poor stewards of capital. Returns on invested capital have averaged less than half the company's weighted cost of capital (estimated at 10%) for the past five years. I would argue that a company that is not earning its cost of capital has no business paying a 10% dividend. You are welcome to disagree.
Penn West's debt to cash flow ratio was about twice that of their peers. If it doesn't worry you, that's your judgment. However it apparently did worry Penn West management, in that they announced a $1.3 billion asset sale in order to reduce the debt. At current prices, Penn West's market cap is just over $5 billion so selling off $1.3 billion in assets is a pretty good chunk of the company.
But who knows, maybe Mr. Obama will approve the Keystone XL pipeline, and Mr. Harper will approve the pending takeovers of Nexen, Progress Energy and Celtic Exploration. Maybe, as a result of that the Chinese will come in and pay a big price for Penn West. Could happen. Who knows.
UBS just came out with updated debt/cash flow ratios for selected Canadian energy companies. For calendar 2012, they have the following debt/cash flow ratios:
Arc Resources: 1.0
Crescent Point 1.0
Penn West 3.4
This stock has been dumped by investors and institutionals and is down more than 50% in a year. No amount of pumping job can hide the facts. But then, why get confused and aggravated over facts. Just whistle and sing the same old mantras, everything will be OK. Buyer BEWARE!
Stipulating once again that I think it's an OK play for speculation or gambling, but as a long term investment for people looking for income and growth, forget it. Many other great choices out there where you don't lose sleep...or value.
It has been stated and links provided in previous posts. It does no good to continually post the same information, as people simply ignore it anyway. However, check SEDI, check EDGAR, check the SEC websites. In fact, SEDI does a better job of listing it than EDGAR does.
PWE is a growth story, not a current cash flow story.
Who looks at only EPS compared to dividend? Look at MLPs, their EPS is negative often times, but have plenty of cash to distribute. EPS takes into account MANY non cash items.
The $1.3 billion they got for their land position was less than 10% of the company's holdings. It shows the true value of the company at a market cap of 5 billion.
Go buy fixed income, if all you want is a fixed "cash flow" return.
Perhaps the best way to play the boom in North American oil production is through Penn West Energy, which has the most leverage to light oil plays in Western Canada.
With a quarterly dividend of $0.27 and a stock price around $10.50 Penn West is yielding nearly 10% and should be able to grow reserves for a long time to come as its unconventional oil plays are developed.
Penn West has the dominant position in no less than 4 of Canada's 5 largest light oil plays:
Cardium (2,000 drilling locations)
Carbonates (1,000 drilling locations)
Viking (1,250 drilling locations)
Spearfish (750 drilling locations)
In recent months we have seen Exxon and various large Asian companies make large acquisitions in order to lock up years of unconventional drilling.
I'm sure Penn West is on a short list of targets that Exxon and the other big boys have on their wish lists. A takeover would surely result in a handsome premium from the current share price, and the dividend provides some nice income while we wait.
I am recently long the stock but like your post. Thanks for posting a factual, non-shrill perspective from the other side. My view is that there is significant upside potential from higher oil prices, especially for Canadian oil, and I would expect very substantial asset reserve increases being recognized as extraction advances enable the company to maximize exploiting its assets. Also, a commodity like oil is an excellent long term hedge against inflation, which I think is inevitable (though the timing of that is murky).