Buzz,
CWEI looking good if oil prices dont drop too much.
I knew you would want to see Dave's analysis.
Subject: Hot Stocks - CWEI
RECOMMENDATION: Buy
Price at First Recommendation: $14.125 Ask
Target: $20+ within 6 months
Book Value: $7.71
EPS Ranking: 74
Relative Strength Ranking: 85
Accumulation/Distribution: B
Group Rating: D
Revenue Growth Rate: 31.70
Revenue Ranking: Top 74%
Industry Growth Rate: 32.70
Industry Ranking: Top 90%
Employees: 100
Market Cap (mil) 127.66
Short Interest 15,000 shares
CWEI - This company is primarily engaged in the exploration for and
development and production of oil and natural gas in south and east
Texas, southeastern New Mexico and the Texas Gulf Coast. Revenues
for the three months ended Mar 97 increased 34% to $17.9 million.
Net
income totalled $3.2 million, up from $1.4 million. Revenues reflect
a
20% increase in oil production, a 19% increase in oil prices, a 28%
increase
in gas prices and the benefits of the 3 gathering systems acquired.
Earnings
reflect a sharp reduction in debt.
Company Profile:
-------------------------
Symbol: CWEI ( NASDAQ ) Marginable
Current Price: $14.375 Bid / $14.750 Ask
High/Low 12 mos: $19.88 / $7.00
Address: Six Desta Drive
Suite 6500
Midland, TX 79705
United States
Phone: (915) 682-6324
Investor Rel POC Lajuanda Holder
Shares Outstanding 8.881 million
Float: 3.800 million
Average Daily Vol: 34,000 shares
Average Monthly Vol: 685,000 shares
Company Objective:
------------------------------
To increase drilling activities in the Cretaceous Trend while rapidly
expanding
its exploration activities by conducting both a 3-D seismic survey
covering
approximately 50,000 net acres in Robertson County, Texas ( Cotton
Valley
Exploratory Project ) and exploration activities in its newly
acquired
projects in east and south Texas, Louisiana and Mississippi. ( areas
outside
of the Trend )
Results to Date:
-------------------------
REVENUES:
Oil and gas sales increased 34% from 12.4 million to 16.6 million
primarily due to:
a) a 20% increase in oil production
b) a 19% increase in oil prices
c) a 28% increase in gas prices
These benefits were offset in part by a 17% decline in gas
production as most of
the wells drilled were oil wells.
* Production from wells completed prior to 31 Mar 96 accounted for
approx 35%
of the total oil production for the 97 period, which more than offset
the effects of
steep production declines from previously existing Trend wells.
Natural Gas services increased 35% from $964,000 in 96 to 1.3
million in 97 due
primarily to additional revenues generated in 97 related to 3
gathering systems
acquired in the 2nd qtr of 96.
COSTS AND EXPENSES
a) Lease Operations expenses increased 14% from $3.6 million in 96
to $4.1
million while oil and gas production on a BOE basis increased 7% to
$5.31 per
BOE in 97.
b) Company expects costs to remain above $5.00 per BOE for the
remainder
of 97.
c) Exploration costs increased from $254,000 to $1.8 million in 97
due
primarily to costs incurred during the period in connection with
exploration
projects initiated in the 4th qtr of 96.
d) CWEI plans to spend another $4 million on exploration in the
Cotton Valley
Area and another $8 million in other areas.
e) DD&A expense increased 11% from $5.7 million in 96 to $6.3
million in 97
due primarily to a 7% increase in oil and gas production.
f) G&A expenses increased 28% from $707,000 in 96 to 903,000 in 97
due
primarily to increased personnel costs.
g) Costs of natural gas services increased 45% from $757,000 in 96
to $1.1
million in 97 due primarily to additional costs incurred related to 3
gas gathering
system acquired in the 2nd qtr of 96.
h) Interest expense decreased 64% from $982,000 in 96 to $352,000
in 97
due primarily to lower average levels of indebtedness on the Credit
Facility, and
to a much lesser extent, lower average interest rates.
EARNINGS
Earnings on a yearly and quarterly basis will be lower than last
year
and the like quarters as a result of CWEI's commitment to increase
its
exploration activities. However, CASH FLOW will be up sharply.
Analyst
Kim Pacanovsky from Gaines Berland recently initiated coverage with a
Buy Rating. She expects cash flow of $5.04 for 98.
Key Points:
------------------
1) Revenue was up sharply from 13.332 million to 17.894 million
2) Expenses are up as the company increases its exploration
activities
3) Cash Flow from operation is soaring ( 11.877 million versus 7.663
million )
4) Company has increased the number of rigs from 2 to 3.
5) Cotton Valley Exploration is a higher risk but higher return
investment.
6) Company has bought back 1.115 million shares ( will buy back
another
885,000 shares ) and is significantly reducing its debt.
*******************************
Fundamental Evaluation
*******************************
Company sells at a DISCOUNT to the Industry ( Oil & Gas Operations )
in all
price ratio areas:
PRICE RATIOS:
------------------------
1) Price to Earnings: Company: 7.43 Industry: 20.08 Lower is
Better
Trailing
1Q Mar 97: .35 versus a profit of .19
4Q Dec 96: .81 versus a loss of $1.46
3Q Sep 96: .45 versus a profit of .72
2Q Jun 96: .32 versus a loss of .14
1 Trailing plus Analyst Estimates for next 3 Qtrs
1Q Mar 97: .35 versus a profit of .19
2Q Jun 97: .13 estimate (Mean - 1) versus a profit of .32
3Q Sep 97: .20 estimate (Mean - 1) versus a profit of .45
4Q Dec 97: .41 estimate (Mean - 4) versus a profit of .81
Target Using Industry Average ( Trailing )
Target = ( 20.08 / 7.43 ) * $14.375 = $38.85
Target Using Industry Average ( 1 Trailing plus 3 Estimate )
Target = ( 20.08 / 13.19 ) * $14.375 = $21.88
2) Price to Sales: Company: 1.67 Industry: 2.52
1Q Mar 97: 17.894 million versus 13.332 million
4Q Dec 96: 19.841 million versus 11.644 million
3Q Sep 96: 15.584 million versus 10.688 million
2Q Jun 96: 16.134 million versus 13.649 million
Target Using Industry Average = ( 2.52 / 1.67 ) * $14.375 = $21.69
3) Price to Book: Company: 1.86 Industry: 3.19
Target Using Industry Average = ( 3.19 / 1.86 ) * $14.375 = $24.65
4) Price to Cash Flow: Company: 2.91 Industry: 8.50
Target Using Industry Average = ( 8.50 / 2.91 ) * $14.375 = $41.99
* The Best Measure for an Oil Company
FINANCIAL RATIOS:
-------------------------------
Company has less debt than the Industry Average:
1) Debt to Equity: Company: .25 Industry: .89 Lower is Better
2) LTD to Equity: Company: .25 Industry: .84 Lower is Better
* The smaller the number, the better; but figures will vary by
Industry.
Ideally, you would rather own companies with debt-to-equity ratios
that are
lower than their peers.
3) Quick Ratio: Company: .56 Year Ago: .38 Industry: .95
Higher is Better
* Calculated by dividing total current assets minus inventory by
total current
liabilities. Generally, I like to see a number above 1.
4) Current Ratio: Company: .61 Year Ago: .41 Industry: .95
Higher is Better
* A test of a company's ability to meet current obligations with
assets on hand.
To calculate the ratio, divide a company's total current assets by
its total
current liabilities. A number above 2 is favorable. Improving but
less than
the Industry avg.
5) Interest Coverage: Company: 6.43 Year Ago: loss of 1.37 Industry:
5.71
Higher is Better
* CWEI is generating lots of cash. . . decreasing debt . . buying
shares . .
increasing exploration activities
RETURNS:
----------------
1) Return On Equity: Company: 30.75 Year Ago: loss of 15.50
Industry: 15.88 Higher is Better
* A measurement of how well a company is using its capital to
generate
profits. Divide total earnings by total stockholders equity to find
the
percentage result.
2) Return On Assets: Company: 15.77 Year Ago: loss of 5.92
Industry: 5.64 Higher is Better
* A measurement of how well a company is using its assets to generate
profits.
3) Profit Margin: Company: 22.40 Year Ago: loss of 12.13
Industry: 10.25 Higher is Better
******************************************************
SUMMARY OF FUNDAMENTAL EVALUATION
******************************************************
Best Indicator is Cash Flow: $41.99. My target for the next 6 months
is only $20 +. ( Decline in Oil prices is a concern )
CWEI sells for less than 3 times trailing Cash Flow and Cash Flow is
rising.
Investment / increase in exploration activities will hurt earnings in
the near
term but will result in much higher earnings in the following years.
Cotton Valley Could Be Huge . . .
Insider Activity:
1) Strategic Investor Reports lists Ownership at 57.2%
Last 26 weeks - 23,000 shares purchased
Last 26 weeks - 15,000 shares sold
Net Purchased - 8,000 shares
Institutional Activity:
1) Strategic Investor Reports:
Last Qtr - 1.156 million shares purchased
Last Qtr - 1.121 million shares sold
Net Purchased - 35,000 shares
Ownership - 35.6%
**************************
Technical Analysis
**************************
Short Term Indicators - Daily Chart / One Year
------------------------------------------------------------------
General: The stock is EXTREMELY Bullish. Everything in my moving
average
indicator is pointing to higher prices. The fast avg is above the
slow avg,
both the fast and slow moving averages are trending higher and the
price is
above both averages. The stock gaped up and then retraced the gap.
Need
to break above $15.75.
Volume: The short and long term trend, based on both a 5 and 45 bar
moving
average is UP. Volume is trending higher, allowing for an increase in
volatility.
Standard Indicators:
-----------------------------
1) Accumulation/Distribution: Bullish - Reading: + 1,368,311.63
* Both the long and short term trend based on the 5 and 45 bar moving
averages
are UP. Positive but showing only a small increase.
2) Chaikin Oscillator: Neutral Reading: ( 3367.60 )
* Negative but trending UP.
3) Commodity Channel Index: Bullish Reading: + 147.05
* In Bullish territory . . significantly higher than the 100 signal
line
4) Directional Movement: bullish reading: DMI+ 44.94
DMI - 8.54
* DMI + >>>> then DMI -
5) Moving Avg Convergence / Di: Reading: Fast: .61
Slow: .45
Fast above Slow . . Looks good
6) On Balance Volume: Bullish Reading: + 3,466,500.00
* A 5 Bar New High in the stock was confirmed by a new high in this
indicator.
7) Price and Volume: Bullish Reading: + 308,453.22
* Trending Higher
8) Momentum: Bullish Reading + 1.38
* Both the 9 and 45 bar moving averages are UP. Momentum is
indicating an
overbought stock but could continue to remain overbought given the
bullish
trend.
9) Williams A/D: Neutral + Reading: + 3.47
* Trending Up
Long Term Analysis - Weekly / 4 Year Time Period
----------------------------------------------------------------------
--
Standard Indicators:
-----------------------------
1) Accumulation/Distribution: Bullish Reading: + 1,701,619.00
* A 5 bar new high was confirmed by a similar new high in this
indicator.
2) Chaikin Oscillator: Neutral - Reading: ( 17,564.75 )
* This indicator generates a signal when the stock reaches a new high
or new
low which is not confirmed by a similar move in the indicator. The
stock has
reached a 9 bar new high which was not confirmed by this indicator.
This
is generally Bearish. However, this indicator only generates a signal
in the
direction of the trend ( which is Bullish ).
3) Commodity Channel Index: Bullish - Reading: 58.62
* Just crossed above the 0 line . . needs to break above the 100
signal line.
4) Directional Movement: Bullish Reading: DMI + 29.47
DMI - 16.69
* DMI + >> then DMI -
5) Moving Avg Convergence / Di: Bullish Reading: Fast: (.09)
Slow: (.14)
* MACD has just issued a bullish signal.
6) On Balance Volume: Neutral + Reading: + 2,277,500.00
* Trending Higher
7) Price and Volume: Bullish Reading:+ 612,434.88
* Moving Up . . Positive . . Near a new high
8) Momentum: Bullish - Reading: 1.50
* Positive and moving Up but appears overbought in the short term
9) Williams A/D: Neutral + Reading: ( .72 )
* Reversed downward trend . . moving higher
******************************
RISKS IN BUYING CWEI
******************************
1. Volatile Oil and Natural Gas Prices: The Company's revenues and
the value
of its oil and gas properties have been and will continue to be
affected by
changes in oil and gas prices. The company's ability to maintain
adequate
borrowing capacity and to obtain additional capital on attractive
terms is
also substantially dependent on oil and gas prices.
2. Exploration Risk: The company is investing over 4 million dollars
in the
Cotton Valley Area. The exploration of gas tends to be more difficult
and
expensive given the cost of 3d exploration. Although this investment
could
results in a major discovery, CWEI's earnings will decrease as a
result of
its increase in expenditures.
3. Replacement of Reserves: The Trend is characterized by sharp
declines
in production. As such, CWEI must continue to find other promising
areas
to drill for oil. Its investment of over 8 million to explore for oil
outside of
the trend will likewise result in increased expenses which will hurt
short
term earnings. . But the future investment could increase reserves
and
cash flow by a substantial amount.
Disclaimer - The information and statistics in the newsletter or
updates/alerts are obtained from sources I deem reliable but are not
warranted to be accurate or complete. I am not a broker, nor do I
work
for/with a broker. My stock and market discussions and thoughts are
my own
and are not guaranteed to perform. My past performance may not be
indicative
of future performance. Many of the stocks I discuss are risky and may
not be
suited for everyone's investment objectives. I may have positions,
long or
short in the stocks discussed and may profit from them. As with any
investment, research the stocks I discuss and the market conditions
carefully and consider the risks involved. The DC Express, myself or
my
associates are not liable for losses or damages, monetary or
otherwise that
result from the content of the alerts.
* Another DC Express Pick *
DC |
