One Reason EXCO Resources (XCO) Stock Is Stalling

NEW YORK (TheStreet) -- Shares of EXCO Resources (XCO) were stalling, down 9.6% to $1.60 on heavy volume in afternoon trading Wednesday, as oil prices decline following the release of data by the U.S. Energy Information Administration, according to Reuters.

Government data showed U.S. crude stockpiles dropped for a seventh consecutive week, but gasoline stocks and distillate inventories increased.

EIA data showed that U.S. gasoline inventories rose unexpectedly and stocks at Cushing increased for the first time since April.

Investors were expecting gasoline stocks to drop due to the strong demand ahead of the summer driving season, Reuters noted.

Brent crude for August delivery was lower by 1.02% to $63.05 a barrel as of 12:43 p.m. ET, while WTI crude for July delivery was down 1.08% to $59.32 a barrel today.

About 3.12 million shares have changed hands as of 12:52 p.m. ET today, compared to its average trading volume of about 2.56 million shares a day.

Dallas, Texas-based EXCO Resources is an independent oil and natural gas company engaged in the exploration, exploitation, development and production of onshore oil and natural gas properties with a focus on shale resource plays.

Separately, TheStreet Ratings team rates EXCO RESOURCES INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate EXCO RESOURCES INC (XCO) a SELL. This is driven by several weaknesses, 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 deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."

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

  • 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 6806.5% when compared to the same quarter one year ago, falling from -$4.61 million to -$318.11 million.
  • The debt-to-equity ratio is very high at 7.67 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, XCO has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, EXCO RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $56.53 million or 71.78% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 68.42%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 5750.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • You can view the full analysis from the report here: XCO Ratings Report

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