We are upbeat about Approach Resources Inc.’s AREX prospects and believe it is a promising pick right now.
Over the last 30 days, the Zacks Consensus Estimate for the company’s second-quarter and full-year 2019 bottom line has been revised upward. Approach, carrying a Zacks Rank #2 (Buy), also has a strong earnings surprise history, having managed to beat the Zacks Consensus Estimate in three of the past four quarters, the average positive earnings surprise being 12.7%.
Foothold in Prolific Permian
Approach is a pure-play Permian stock, operating 150,000 net acres in the basin. The company has identified roughly 1,350 horizontal drilling locations in the prolific basin with gross resource potential of 950 million barrel of oil equivalent (MMBoE). This is likely to continue to back the company’s production and reserve growth. Last year, Approach reported year-over-year growth in proved reserves of 46%.
Declining Well Cost & LOE
Since 2011 to the recent months of 2019, Approach has managed to lower well costs by more than 55%. The company also cut down lease operating expenses (LOE) per barrel of oil equivalent (BoE) by 20% from 2014 to 2018.
Lower expenses will continue to drive the company’s unhedged profit margin. Notably, from 2016 to 2018, Approach reported a massive 66% improvement in unhedged profit margin per BoE.
Clean Energy Demand
Natural gas comprises 40% of the company’s total production volumes. With the demand for clean energy demand on the rise, the focus is now on reducing greenhouse gas emissions. The company has significant natural gas volumes, which positions it well in this aspect.
Approach’s Permian foothold is also a positive when it comes to natural gas production. This is because among all the key producing plays in the United States, Permian records the largest daily natural gas volumes after Appalachia. According to the U.S. Energy Information Administration, daily natural gas production in the Permian will increase a sequential 241 million cubic feet in June.
Other Stocks to Consider
Other prospective players in the energy space are Apache Corporation APA, Ecopetrol S.A. EC and Anadarko Petroleum Corporation APC. While Apache and Anadarko carry a Zacks Rank #2, Ecopetrol sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Apache has average positive earnings surprise of 6.6% for the last four quarters.
Anadarko Petroleum has average positive earnings surprise of 6.6% for the last four quarters.
Ecopetrol is likely to witness earnings growth of 25.3% through 2019.
This Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Click here to see these breakthrough stocks now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Ecopetrol S.A. (EC) : Free Stock Analysis Report
Apache Corporation (APA) : Free Stock Analysis Report
Anadarko Petroleum Corporation (APC) : Free Stock Analysis Report
Approach Resources Inc. (AREX) : Free Stock Analysis Report
To read this article on Zacks.com click here.