NEW YORK (TheStreet) -- Shares of Continental Resources Inc. (CLR) are down 3.75% to $51.54 after CEO Harold Hamm stunned a bearish crude market by scrapping all of the company's hedges, in a bold bet that prices will recover soon after sliding some 25%, Reuters reports.
President of consultancy PKVerleger LLC Philip K. Verleger told Reuters that the independent crude oil and gas exploration, and production company's decision on hedging may concern investors.
"My expectation is that Continental's investors will rue this decision because it changes the firm's business," he said, adding, "Hedging provides an assured cash flow. By dropping the hedges the firm is gambling that prices go up. If they go down Continental will go bust."
Separately, TheStreet Ratings team rates CONTINENTAL RESOURCES INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate CONTINENTAL RESOURCES INC (CLR) a BUY. This is driven by multiple 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 good cash flow from operations and expanding profit margins. 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:
- Net operating cash flow has slightly increased to $741.79 million or 6.14% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -6.46%.
- CONTINENTAL RESOURCES 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, CONTINENTAL RESOURCES INC increased its bottom line by earning $2.07 versus $2.03 in the prior year. This year, the market expects an improvement in earnings ($3.15 versus $2.07).
- The gross profit margin for CONTINENTAL RESOURCES INC is currently very high, coming in at 75.73%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, CLR's net profit margin of 11.68% compares favorably to the industry average.
- CLR, with its decline in revenue, underperformed when compared the industry average of 1.9%. Since the same quarter one year prior, revenues fell by 18.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, CONTINENTAL RESOURCES INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full analysis from the report here: CLR Ratings Report