The downgraded outlook stems from the firm's view of the declining impact of the Permian Basin oil exploration in the U.S. southwest on equity values.
"New delineation results appear to be having less and less of an impact on Permian equity values. The decline in relevance may be related to the wide range of possible well count, spacing assumption and ultimate wellhead economic outcomes... Declining share prices could be an indication that the market is nearing saturation for new Permian-linked equity," said analysts at the firm.
TheStreet Ratings team rates LAREDO PETROLEUM INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate LAREDO PETROLEUM INC (LPI) a BUY. This is driven by a few notable strengths, 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, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- LPI's revenue growth has slightly outpaced the industry average of 2.4%. Since the same quarter one year prior, revenues slightly increased by 3.2%. 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.
- LAREDO PETROLEUM 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, LAREDO PETROLEUM INC increased its bottom line by earning $0.85 versus $0.47 in the prior year. This year, the market expects an improvement in earnings ($0.99 versus $0.85).
- The gross profit margin for LAREDO PETROLEUM INC is currently very high, coming in at 80.63%. Regardless of LPI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LPI's net profit margin of -10.32% significantly underperformed when compared to the industry average.
- 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. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, LAREDO PETROLEUM INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Net operating cash flow has declined marginally to $111.98 million or 2.81% when compared to the same quarter last year. Despite a decrease in cash flow of 2.81%, LAREDO PETROLEUM INC is in line with the industry average cash flow growth rate of -6.15%.
- You can view the full analysis from the report here: LPI Ratings Report
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