Neena Mishra

Bear of the Day: Kosmos Energy (KOS)

by

July 03, 2013 |
KOS

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Disappointing results and downbeat guidance have led to downward estimates revisions, sending Kosmos Energy to a Zacks Rank # 5 (Strong Sell).

About the Company

Headquartered in Hamilton, Bermuda, Kosmos Energy Limited (KOS - Snapshot Reportis an independent oil and gas exploration company focused on frontier and emerging areas along the Atlantic Margin. The company has production assets and other project developments offshore Ghana and exploration licenses offshore Ireland, Mauritania, Morocco and Suriname and offshore Cameroon.

Disappointing Results and Guidance

On May 9, 2013, Kosmos reported it first quarter 2013 results. Net income for the quarter came in at $20 million or $0.05 per share, 3 cents short of the Zacks Consensus Estimate of $0.08 per share.

The management provided downbeat guidance for the second quarter. The company also announced a delay in implementation of a key project in Morocco.

Downwards Revisions

Due to disappointing results and downbeat guidance, quarterly and annual estimates have been revised sharply downwards in the past few weeks by analysts.

Zacks consensus estimate for the current quarter now stands at $0.05 per share versus $0.09 per share, 60 days ago, while the full-year consensus estimate is $0.25 per share now, down from $0.35 per share.

The Bottom Line

KOS is currently Zacks Rank # 5 (Strong Sell) stock and it has a longer-term recommendation of “Underperform”. Further, the Zacks Industry rank of 230 out of 265 also indicates weakness in the near- to mid- term.  Oil and gas prices have been under pressure of late due to a strong US dollar and slow-down in China and some other major emerging economies.

Thus we think investors should avoid this stock for the time being.

Better Play?

Investors looking for exposure to the industry (International Exploration & Production) could look at Afren PLC (AFRNF); which is a Zacks rank#2 (Buy) stock.  However given challenging conditions for the industry and increasing risks associated with investing in companies engaged in frontier/emerging markets exploration, I think investors could do better by avoiding this space for the time being.

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