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Why Energy XXI (EXXI) Is Falling Today

NEW YORK (TheStreet) -- Energy XXI (Bermuda) (EXXI) was falling 5.4% to $22.11 Wednesday following news that it will acquire rival EPL Oil & Gas (EPL) for $1.53 billion.

As part of the deal Energy XXI will pay $39 a share in cash and stock to acquire EPL. The larger oil company will also take on all of EPL's debt, bringing Energy XXI's total consideration for the deal to $2.3 billion.

One of EPL's directors will join the Energy XXI once the deal closes.

The acquisition will make Energy XXI the largest independent producer on the Gulf of Mexico shelf.

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"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 a press release.

TheStreet Ratings team rates ENERGY XXI (BERMUDA) as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ENERGY XXI (BERMUDA) (EXXI) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."

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

  • Net operating cash flow has increased to $153.80 million or 10.27% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.43%.
  • The gross profit margin for ENERGY XXI (BERMUDA) is rather high; currently it is at 64.06%. Regardless of EXXI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.53% trails the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 74.6% when compared to the same quarter one year ago, falling from $41.33 million to $10.50 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ENERGY XXI (BERMUDA)'s return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • You can view the full analysis from the report here: EXXI 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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