On Aug 28, Zacks Investment Research downgraded Canadian energy explorer, Talisman Energy Inc. (TLM) to a Zacks Rank #4 (Sell).
Why the Downgrade?
Talisman witnessed sharp downward estimate revisions after reporting a disappointing second-quarter 2013 result. In fact, Talisman delivered negative earnings surprises in each of the last 7 quarters with an average miss of 131.6%.
Last month, Talisman reported second-quarter 2013 loss per share of 3 cents against the Zacks Consensus Estimate of earnings of 4 cents and the year-ago earnings of 7 cents per share. The loss was mainly due to decreased production along with lower oil and liquids price realizations.
Talisman’s quarterly oil and liquids volumes were down by a substantial 34.6% year over year to 98,959 barrels per day (Bbl/d), owing to significantly lower production in the North Sea. Moreover, due to decreased production in North America and North Sea, Talisman’s natural gas volumes were down 14.4% to 1,369 million cubic feet per day (MMcf/d), as compared to 1,599 MMcf/d in the year-ago period.
Also, cash flow from continuing operations during the quarter totaled $526.0 million, down 34.5% from the second quarter of 2012.
Lastly, Talisman depends on property acquisitions to expand its resource base. The company may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.
As a result of these bearish factors, the tendency for a downward estimate revision has been more obvious in recent times. In fact, the Zacks Consensus Estimate for third-quarter 2013 decreased 14.3% to 6 cents per share over the last 30 days. For 2013, more than half of the estimates (6 out of 10 estimates) were revised downward over same time frame, bringing down the Zacks Consensus Estimate by a whopping 61.1% to 7 cents per share.
Stocks to Consider
Not all energy stocks are performing as poorly as Talisman. In the exploration and production sector, firms like ARC Resources Ltd. (AETUF), Crescent Point Energy Corp. (CSCTF) and Canadian Oil Sands Limited (COSWF) are worth considering. All the stocks sport a Zacks Rank #2 (Buy).
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