A Pure-Play in the Permian Basin

Jay Peroni, Lead Analyst, CEO and FounderAccess, Blog (Public), Growth

An Energy Growth Stock for Your Radar

Permian Basin

The Permian Basin is a sedimentary basin largely contained in the western part of the U.S. state of Texas and the southeastern part of the U.S. state of New Mexico. It reaches from just south of Lubbock, to just south of Midland and Odessa, extending westward into the southeastern part of New Mexico. It is so named because it has one of the world’s thickest deposits of rocks from the Permian geologic period.

Permian Basin oil companies have been some of the best opportunities in the energy sector over the past few years.

Let’s take a look at a great energy opportunity in this area…

A Pure-Play in the Permian Basin

Company:               Callon Petroleum (CPE)

Industry:                Oil Gas & Consumable Fuels

Sector:                      Energy

Profile:   Founded in 1950, Callon Petroleum is an independent oil and natural gas company focused on growing production and reserves from our oil-weighted, multi-play, multi-pay assets in the Permian Basin.

It is a pure-play, Permian company that has become one of the leading horizontal operators in the Midland Basin. Callon engages in the exploration, development, acquisition, and production of oil and natural gas properties in the Permian Basin in West Texas.

Chart:


Reasons to Buy

  • With a strong U.S. dollar, growing crude oil inventories and in the heart of seasonal demand, oil prices have stabilized. This should allow for strong growth for Callon Petroleum.
  • The Permian Basin is about half of the drilling rigs in the United States. Callon Petroleum controls about 1,500 horizontal drilling locations in nine zones, of which five are active.  In these five zones, it has over 900 horizontal drilling locations.
  • Callon has been on a strong growth path:  It went from an average production of about 5,650 barrels of oil in 2014 to 9,610 barrels of oil per day in 2015, a 70% increase in net daily production. In 2016, the growth was even better at around 90%.  Analysts are expecting 100% annual earnings growth and 114.7% annual sales growth in its upcoming results.

5 Point Stock Inspection

  1. Earnings Trend: Grade B
  • Solid Earnings Growth Trend, solid Momentum, and a history of Surprises
  • Positive Analyst Earnings Revisions
  • Earnings growth last quarter greater than 20% over same quarter last year
  1. Financial Health: Grade B
  • Stronger financial profile than 59.85% of stock universe
  • Solid Sales Growth: Healthy 5-year growth
  • Net profit margin greater than industry average
  • Growing Free Cash Flow
  • Ratio of long term debt to equity is less than industry average
  1. Momentum: Grade A
  • Strong Momentum
  • Relative Strength is 91 out of 100
  • Stock up over 100% over past 12 months
  1. Risk: Grade C
  • High risk
  • Beta above market (1.71)
  • Has lower risk profile than just 24.4% of stock universe
  1. Valuation: Grade B
  • Forward P/E at 27.04, in line with industry average
  • Forward PEG Ratio (less than 1)
  • Good buy under $17/share

Overall:  Grade B

Bottom Line

Callon Petroleum (CPE) is a solid choice if you are looking to gain exposure to the high growth Permian Basin oil area.  The higher risk profile is not for everyone, but investors with patience and an appetite for risk should give Callon a closer look.

 

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Disclaimer

While Dual Returns has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.