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Why EPL Oil & Gas (EPL) Is Soaring Today

Stocks in this article: EPL

NEW YORK (TheStreet) -- EPL Oil & Gas  (EPL) was soaring 29.82% to $37.79 at 10:58 a.m. on Wednesday after news broke that Energy XXI  (EXXI) would purchase the company for total consideration of $2.3 billion.

The deal would create the publicly-owned independent oil producer on the Gulf of Mexico shelf, according to the companies' statement. Ben Marchive, Energy XXI Executive Vice President of Exploration and Production, said in a statement that the combined company would own and operate 10 oil fields on the shelf with cumulative production each exceeding 80 million barrels of oil.

"EPL's assets and operations closely resemble our own, predominantly oil, with some of the highest margins in the industry and extraordinary opportunities for reserves and production growth through development and exploration activities," Energy XXI Chairman and CEO John Schiller said in the statement. "Energy XXI will be the only publicly traded pure play on the Gulf of Mexico shelf, with the highest concentration of large, mature oil fields ever owned by a single shelf operator. With a history of increasing acquired reserves, we have proven the adage that big oil fields get bigger, and we are excited at the prospect of continuing that trend with the addition of EPL's properties."

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TheStreet Ratings team rates EPL OIL & GAS INC as a "buy" with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate EPL OIL & GAS INC (EPL) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, good cash flow from operations, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 7.7%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has significantly increased by 52.96% to $78.40 million when compared to the same quarter last year. In addition, EPL OIL & GAS INC has also vastly surpassed the industry average cash flow growth rate of -23.43%.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • EPL OIL & GAS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, EPL OIL & GAS INC increased its bottom line by earning $2.14 versus $1.50 in the prior year. This year, the market expects an improvement in earnings ($2.16 versus $2.14).
  • You can view the full analysis from the report here: EPL Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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