NEW YORK (TheStreet) -- Capital One has downgraded EPL Oil & Gas (EPL) to "market perform" from "outperform," as the Delaware energy company is being investigated for its sale to Energy XXI for $2.3 billion.
Juan E. Monteverde of securities firm Faruqi and Faruqi will be investigating EPL's board of directors for potential breaches of fiduciary duties for possibly undervaluing EPL ahead of its sale, to the detriment of its shareholders.
Energy XXI is offering EPL's shareholders $39 per share or 1.67 common shares of Energy XXI or a combination of both in the deal. This acquisition would make Energy XXI the largest publicly traded shallow water driller in the Gulf of Mexico. Shares of EPL were up 0.80% to $37.80 in morning trading.
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