Graham / Crestar
I've just switched from Imperial to Crestar. To echo Kerm's comments, I see Crestar as undervalued. That's not to say that the company is a racehorse -- I think the Q3 results were poor. Look at the success rate on exploration drilling -- don't have it in front of me, but I recall it was in the area of 45%. Plus earnings, as Kerm mentioned. So they hardly deserve a premium multiple with their current performance. But -- with the current share price, the company has got to be a takeover candidate. Whatever their performance, there are assets there, including a land position that has got to make people salivate given today's land costs. If you were to value a daily boe of production at $20,000 (which I think might be a bit conservative in the current acquisition environment), the back of my envelope says Crestar's 90,000 boe/d 1997 exit target would yield a share price on the order of $35.
What's the downside? Well, the shares could languish in the low $20 range for quite a while, so it might be a couple of years before you see any return. But I don't see any real threat to the company's viability -- debt is high, but not ridiculous -- and if they can do $4-$5 in cash flow, they can finance some exploration. If you can be patient, I see Crestar as an opportunity.
JMHO. I would invite anyone to PLEASE poke holes in my argument, as I have put quite a bit of money where my mouth is. |
