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Stone Energy Upped to Strong Buy

Zacks Equity Research

On Sep 24, 2013, Zacks Investment Research upgraded independent oil and gas explorer, Stone Energy Corp. (SGY) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Stone Energy is well placed in the industry with a widespread and high-yielding inventory. Earlier this month, the company provided an update on the deepwater Taggart prospect, including the exploratory well drilled at Mississippi Canyon 816. It has completed drilling operations in the project.

The company announced a discovery on the Taildancer prospect at Ship Shoal 113, with the well encountering 130 feet of net oil and gas pay. Also, a rig for the deepwater San Marcos prospect at Mississippi Canyon 983 has begun drilling. Stone Energy holds a holds a 25% working interest in the prospect which is operated by Apache Corporation (APA).  

The company raised the third quarter production guidance from 42–45 million barrels of oil equivalent (Mboe) per day to 46–49 Mboe per day whereas the full-year guidance has been increased from 41–44 Mboe per day to 43.5–45.0 Mboe per day.

The company’s confidence in its operations can also be seen by way of its increased capex budget for 2013 – from $650 million to $710 million. Stone Energy is looking for growth and development with a major portion of the budget focused on the Gulf of Mexico deepwater shelf.

The second quarter results also paint a positive picture for Stone Energy with earnings of 78 cents per share increasing 25.8% from the year-earlier profit of 62 cents. Total operating revenue of $245.9 million was also up 8.5% year over year. Moreover, this exploration and production company has delivered an average surprise of 23.79% in the past four quarters.

The Zacks Consensus Estimate for the third quarter has moved up 2 cents (or 2.8%) to 74 cents over the last 60 days. The Zacks Consensus Estimate for the full year is currently pegged at $3.01, after moving up 14 cents (or 4.9%) in the same time frame.

Positive earnings surprises, encouraging drilling results and increased production guidance stimulated the rank upgrade.

Other Stocks That Warrant a Look

In addition to Stone Energy, one can also consider other energy sector stocks such as Dril-Quip, Inc. (DRQ) and Matador Resources Company (MTDR) as attractive investment opportunities. Both these currently hold a Zacks Rank #1 (Strong Buy).   

Read the Full Research Report on APARead the Full Research Report on DRQRead the Full Research Report on SGYRead the Full Research Report on MTDRZacks Investment Research