This North American exploration and production company is riding the commodities bull to new heights. Encore Acquisition Company ( EAC ), a Zacks #1 Rank (Strong Buy), is engaged in the development of onshore North American oil and natural gas reserves.
Based in Fort Worth, Texas, Encore has acquired high-quality assets and grown through drilling, waterflood, and tertiary projects. Encore's properties are located in the Rockies, which includes the Dakotas, the Mid-Continent, which includes Oklahoma, and the Permian Basin which includes New Mexico and Texas.
Encore uses acquisitions to increase its reserves. Since the company was founded in 1998, Encore has acquired producing oil and natural gas properties totaling over $850 million. The company is actively looking for new properties.
On Feb 13, the company reported that fourth quarter earnings soared 93 percent. Earnings were $19.4 million, or 36 cents per share, up from $10.1 million, or 19 cents per share, in the year-ago period. After adjustments that excluded hedging gains and losses and one-time items, earnings totaled $37.9 million, or 70 cents per share, which beat analysts' estimates by nine cents. Analysts' consensus estimates were for 61 cents per share.
Quarterly revenue jumped 52 percent to $239.7 million, from $157.7 million in the fourth quarter of 2006 due to rising oil prices. For the year, Encore's revenues grew to $712.9 million. This represents the highest annual revenue in the company's history and a 45 percent increase over the $493.3 million in oil and natural gas revenues in 2006.
Encore's average wellhead oil price, which represents the net price Encore receives for its oil production, surged 55 percent to $77.86 per barrel, from $50.15 in the fourth quarter of 2006.
"Encore is positioned for a great 2008 by planning a low-risk development budget and by helping to ensure a high level of revenue through 2009 by entering into swaps, collars and put contracts," said Jon S. Brumley, Encore's Chief Executive Officer and President.
"Our project inventory is strong, and our exposure to resource plays is increasing, while we are shrinking our outstanding share base through a stock repurchase program. We are ready for 2008 and well positioned for a long-term profitable production growth rate through 2011," he said.
Covering brokerage analysts are mixed on the first quarter. One analyst raised estimates and one lowered out of five analysts in the last week. The analysts had already been raising estimates in the last 60 days as crude prices remained elevated.
Analysts consensus estimates for the first quarter rose 11 cents to 65 cents from 54 cents in the last two months. Consensus estimates for the year have also risen by 36 cents to $2.46 from $2.10 a share.
Encore is cheap, with a P/E of 14.30 and a P/B of 2.20. The company surprised on estimates the last four quarters by 22.90 percent. With all of its properties located in the politically stable North American market, EAC is well-positioned for this commodities bull.
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