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Value

Why is C&J Energy Services Inc. (CJES - Snapshot Report) so cheap? This Zacks #1 Rank (Strong Buy) has a forward P/E of just 4.3. Yet it's supposed to grow earnings by 36% in 2012 as the drilling sector remains hot. What gives?

C&J Energy provides hydraulic fracturing, coiled tubing and pressure pumping services to the energy industry. It operates in 9 of the 14 most prominent shale regions, mainly in South Texas, East Texas/North Louisiana, Western Oklahoma and West Texas/East New Mexico.

Earnings Jumped 207% in the Third Quarter

On Nov 9, C&J Energy reported its third quarter results and beat the Zacks Consensus by 9 cents. Earnings per share were 89 cents compared to the consensus of 80 cents. This crushed the year ago period, when the company made just 29 cents.

Revenue jumped 173% to a record $229 million from $83.9 million in the year ago quarter. The increase was mainly due to the delivery and deployment of the company's 3rd, 4th and 5th hydraulic fracturing fleets.

It averaged monthly revenue per unit of horsepower of $407 in the third quarter, up from $371 in the second quarter.

The company deployed Fleet 6 in the Permian Basin in December. 75% of its equipment will be operating in oily and liquids rich basins.

It was trying to secure multi-year take-or-pay contracts for Fleets 7 and 8 which are currently on order.

C&J Energy didn't expect to have to draw on its $200 million revolving credit facility to fund the new fleets given its strong operating cash flow.

2012 Estimates Rise

While huge earnings growth of 375% is expected in 2011, analysts are also still bullish on 2012.

The 2012 Zacks Consensus Estimate rose 15 cents to $4.33 per share. That is earnings growth of 36% as the company is expected to make $3.18 in 2011.

It only made 67 cents in 2010.

C&J Energy is scheduled to report fourth quarter results on Feb 9.

Super Cheap Stock

Even though the company has been in business since 1997, C&J Energy has been publicly traded for only about 6 months.

But shares are cheap. In addition to a P/E of just 4.3, which is well under its peers which average 11.6, it has a price-to-book ratio of 2.9. A P/B ratio under 3.0 usually indicates value.

Additionally, if you're looking for other solid fundamentals, C&J Energy has a 1-year return on equity of 62%. That crushes its peers which have an ROE averaging 14%.

If you want a value play on the hot drilling sector, which also has growth, then the drilling service companies like C&J Energy look pretty attractive here.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.

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