Why Kosmos Energy (KOS) is Tumbling

NEW YORK (TheStreet) -- Kosmos Energy (KOS) tumbled during morning trading Wednesday after announcing oil production at one of its sites was lower than forecast. By mid-morning, shares had taken off 5.9% to $10.45.

The Bermuda-based business said Tullow Oil, the manager of Kosmos' Jubilee field site off the Ghanaian coast, had revised its production forecast of 100,000 barrels of oil per day (bopd) for full-year 2014. The revised rate allows for a two-week shutdown for maintenance of the production, storage and offloading vessel. The revision is related to a third gas injection well set up in the fourth quarter of 2013 which provided minimal relief.

Similar to 2013 production levels, Kosmos' net interest in the site will total 24,100 bopd over 2014, less than investors had hoped for. The company said this equates to the sale of eight crude oil cargoes over the year.

TheStreet Ratings team rates KOSMOS ENERGY LTD as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate KOSMOS ENERGY LTD (KOS) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, unimpressive growth in net income and generally disappointing historical performance in the stock itself."

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

  • KOSMOS ENERGY LTD's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern earnings per share over the past two years. During the past fiscal year, KOSMOS ENERGY LTD swung to a loss, reporting -$0.19 versus $0.05 in the prior year.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has decreased by 22.7% when compared to the same quarter one year ago, dropping from -$36.25 million to -$44.49 million.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, KOS has underperformed the S&P 500 Index, declining 11.39% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, KOSMOS ENERGY LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 5.6%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

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