Is Forest Oil Doomed?

24/7 Wall St.

Forest Oil Corp. (FST) was trading on Wednesday as though it is going to implode. With a stock price of $2.05 after a 36.5% drop in one day, and with shares having hit a 52-week low of $1.94 earlier in the day, many might argue that this already did implode.

After the earnings report, we have seen Wells Fargo Securities downgrade the stock to Market Perform from Outperform. Forest Oil also saw its price target range lowered down to $3 to $5 from a prior $4 to $6 range.

Forest Oil reported earnings of $0.02 and $88.49 million in revenues, versus $0.06 in earnings per share and $154.9 million in revenues a year ago. The Thomson Reuters consensus estimates were $0.03 in earnings per share on about $96 million in revenue.

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Forest is now projecting that its mix of products sold in 2014 will be about 35% oil and 65% natural gas. A slower Eagle Ford development and lower well results will crunch its expectations as well.

It would seem safe to assume that earnings expectations further out are now history. Also, loan covenants should be considered an issue here as well. Forest Oil is expected to see a 22% drop in 2014 revenues, followed by a 14% gain in revenues in 2015 according to Thomson Reuters. The consensus earnings estimates are $0.41 in 2014 and $0.54 in 2015. We would consider both of those numbers no longer the case considering the drop.

Here is the real rub -- a 36% drop is bad no matter what. But on fourteen-times normal trading volume? The 54 million shares that had traded hands in mid-afternoon trading compares to 3.74 million shares on a normal day.

Before you consider this a new 52-week low, it is worse. The chart shows that this is an all-time low going back to the 1990s.

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