Stone Energy Corporation (SGY) saw a big hit to the 2014 Zacks Consensus Estimate recently and that has made it a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day.
Lowest Rank and Weak Industry Rank
Not only is AFSI a Zacks Rank #5 (Strong Sell), but its industry rank is #163 out of 265. That means SGY is in the bottom 38% of all the industry's that are ranked by Zacks. Zacks also has an 'Outperform' recommendation and a Zacks Price Target of $39.00.
Stone Energy Corporation, an independent oil and natural gas company, engages in the acquisition, exploration, exploitation, development, and operation of oil and gas properties in the Gulf of Mexico and the Appalachia region. As of December 31, 2012, it had estimated proved oil and natural gas reserves of approximately 773 billion cubic feet of gas equivalent. The company was founded in 1993 and is headquartered in Lafayette, Louisiana with additional offices in New Orleans, Louisiana; Houston, Texas; and Morgantown, West Virginia.
3 Misses and 3 Beats
Over the last six quarters SGY has seen three misses and three beats of the Zacks Consensus Estimate. The most recent quarter as a miss of $0.06 or a 7.7% negative earnings surprise. As a result the stock traded lower by 4% in the session following that earnings report.
The mixed batch of beats and misses underscores how difficult it is for energy analysts as they are fighting both the production estimates and where spot prices trade to. That double whammy on the earnings model can also be impacted by long term contracts and actions taken by the company in the futures market (selling contracts to lock in prices).
Looking that the 2013 Zacks Consensus Estimate, I see a consistently rising number. That goes against the basic idea of why this stock is a Zacks Rank #5 (Strong Sell) but then I looked at the 2014 Zacks Consensus Estimate and the 2015 Zacks Consensus Estimate. The 2014 number is significantly lower than the 2013 number and the 2015 number is also lower than the 2014 number. In essence, the analysts that cover this stock believe we will see two years of negative earnings growth. That is not what you want to see in a stock in your portfolio.
The valuation for SGY is more or less in line with the industry average. The forward earnings multiple of 15x is just below the 17x industry average. The price to book multiple is 1.6x, below that of the industry average of 1.8x. Finally the price to sales multiple of 1.6x is well below the 2.6x industry average. All signs point to a stock price that is aligned with current expectations... it's the future expectations that investors need to be concerned with.
The price and consensus chart is a great tool developed by Zacks. It shows how the stock has acted as the Zacks Consensus Estimate moves over time. SGY does have the energy component side of the equation that makes it hard for analysts to consistently hit the earnings mark. You can see from the price and consensus chart that earnings can move all over the place. Look at the 2012 earnings estimate line that could be traced to the letter 'M' - that is something that I have never seen before in using this chart over the last two years on a near daily basis.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
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