This oil company is expected to grow at an annual rate of 30% over the next five years.
Earthstone Energy (ESTE)
From Global Investing
Our new US holding tip is Earthstone Energy (ESTE), which operates in Texas, in the Midland Basin and the Eagle Ford Trend. It got into a twist last month over misreporting to the SEC an increase in holdings of its shares by the EnCap Energy Capital Funding LP IX Fund. In fact, there was no increase. The stock fell 6.13% on this goof.
Insiders own 65% of the shares. Institutions, including EnCap, own 16.4% There are 64 million shares out. The total shares held by IX Fund was 33.9 million rather than 36 million, as ESTE misreported.
It’s Q2 revenues were $37.2 million, with production of 8,845 boe/d (barrels of oil equivalent per day), down 5% sequentially. The drop was costly, as net income came in at $1.472 million vs $12.2 million in Q1. However, Q2 net was comparable to a loss of $54.97 the prior Q2. Per share, the company earned 2 cents vs a loss of 75 cents. It actively hedges its future output of gas.
ESTE deliberately slowed its [Midland] production “as a result of industry and market conditions”, according to President Robert Anderson. This will result in new wells coming on elsewhere, but it guided down its estimated production for this year to 10,500-11,000 boe/d. But, of course, it can switch if gas goes up. It also cut its capital budget for the year to $140 million. The company has $4.2 million in cash and long term credits (for eventual borrowing) at $22.5 million, so is a highly leveraged play. The consensus 2018 forecast, according to Fundamental Markets, is $1.10. ESTE next reports November 1 on Q3.
Buy at around $9/sh.
Vivian Lewis, Global Investing, www.global-investing.com, 212-758-9480, September 26, 2018