Denbury Resources Inc. DNR looks compelling at the moment. Given the company’s strong fundamentals as well as positive estimate revisions, it seems like this is the right time to add the stock to your portfolio.
It is a growing exploration and production (E&P) company engaged in the acquisition, development, operation, as well as exploration of oil and natural gas properties in the Gulf Coast and Rocky Mountain regions of the United States. Moreover, the company has ample liquidity and no near-term maturities. Notably, it currently has a Zacks Rank #2 (Buy), which means that the company is poised to outperform the market.
Why Is Denbury a Solid Bet?
Denbury is one of the leading oil producers in Mississippi, with properties in Louisiana, Alabama and Southeast Texas. The company has a relatively low-risk business model as it produces oil by applying tertiary recovery techniques to mature fields. Moreover, with its in-house CO2 reserve base, Denbury has a significant competitive advantage in acquiring and exploiting mature oil reservoirs.
In this respect, the company’s recent acquisition of Penn Virginia for about $1.7 billion is noteworthy. The transaction will boost Denbury’s holding in the prolific Eagle Ford shale, which is in close proximity to its existing Gulf Coast operations. The acquisition will also be immediately accretive to Denbury’s cash flow per share.
Impressive Operating Cash Flow:
In the trailing 12 months, Denbury recorded net operating cash flow of $518 million, which is capable of financing its operations. Moreover, the company’s operating margin is nearing the $41 per barrel of oil equivalent mark. The company believes that this will enable it to generate significant free cash flow, which in turn will help lower debt burden.
Denbury reported third-quarter 2018 earnings of 13 cents (excluding one-time items), beating the Zacks Consensus Estimate of 11 cents and also improving from 4 cents in the year-ago quarter. The company beat the Zacks Consensus Estimate in each of the last four reported quarters, delivering average positive earnings surprise of 42.4%.
Positive Earnings Estimate Revisions
We believe that the positive trend will continue in the future as well. Over the last 60 days, one analyst has increased the earnings estimate for 2018. For the full year of 2018, its bottom line is expected to surge more than 242% from a year ago to 48 cents per share. The figure is further expected to grow 30% year over year in 2019 to 63 cents per share.
Denbury has gained 7.5% in the past month, outperforming the 5.2% collective growth of the stocks belonging to the industry.
Other Stocks to Consider
Investors interested in the energy sector can opt for other top-ranked stocks as given below.
Houston, TX-based Shell Midstream Partners, L.P. SHLX is a midstream energy company. For 2019, its bottom line, which has witnessed three upside revisions over the past 60 days, is expected to grow 27.7% year over year. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fort Worth, TX-based Approach Resources, Inc. AREX is an upstream energy company. The company’s bottom line for 2018 is likely to improve 33.3% year over year. The company delivered average positive earnings surprise of 13.4% in the last four reported quarters. It currently has a Zacks Rank #2.
Denver, CO-based Bonanza Creek Energy, Inc. BCEI is an exploration and production company. The company’s bottom line for 2019 is likely to surge more than 57% year over year. It delivered average positive earnings surprise of 12.9% in the trailing four quarters. The company currently has a Zacks Rank #2.
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