This petroleum company beat analysts’ estimates by $0.02 cents last quarter and three analysts have increased their forecasts for the company in the past 30 days.
Callon Petroleum (CPE)
From Cabot Growth Investor
Many growth-oriented explorers have set up shop in the Permian Basin, and most should do well as oil prices firm. Our pick of the litter is Callon Petroleum, which isn’t as well-known as some of its peers, but its growth potential is as good as any.
The firm operates on over 40,000 net acres in the Midland Basin, which is spudding some of the best wells in the country; depending on the area, Callon’s wells will return between 30% and 90% at $50 oil.
Management has done a great job of keeping the balance sheet strong, which, combined with hundreds of attractive drilling locations, has prompted the company to embark on a major expansion plan. In the third quarter, the firm added its second rig, and it expects a third rig to begin drilling in January, with a fourth starting operations in the second half of 2017. That should lead to a 50% jump in production next year, with early forecasts targeting another 30% jump in 2018.
We’re impressed that the company remained profitable throughout the oil bust, and now Callon has accelerating sales (up 63% last quarter) and earnings (up 80%) growth. The stock has been choppy, but hit new highs following OPEC’s production cut announcement before dipping modestly over the past few days. We’ll buy it here and use a mental stop near 14.
Michael Cintolo, Cabot Growth Investor, www.cabot.net, 978-745-5532, December 7, 2016