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Value

Energy Partners Limited (EPL) has been using acquisitions to expand production in the Gulf of Mexico. Higher crude prices and increased production has been a boom for earnings which are expected to rise in the double digits in 2012. This Zacks #1 Rank (Strong Buy) is not just a growth stock, but also has value with a forward P/E under 10.

Energy Partners is an independent oil and natural gas explorer with operations in the U.S. Gulf of Mexico shelf off the coast of Louisiana.

The company, based in New Orleans and Houston, is a smaller explorer, with a market cap of $630 million.

Expansion Through Acquisition

On Nov 18, the company closed on its $38.4 million acquisition of oil and natural gas assets in the shallow-water central Gulf of Mexico from a subsidiary of Stone Energy.

The transaction was a cash deal. Even after the acquisition, Energy Partners still had $50 million in cash on hand and another $250 million available under its senior secured credit facility.

The assets had proven reserves of about 1.3 million barrels of oil equivalent (boe) of which 96% were oil.

Fourth Quarter Production Guidance Raised

With the acquisition closed, Energy Partners updated its production guidance.

It has estimated 9,200 to 9,500 barrels per day with 82% being oil. The company's prior guidance called for 9,000 barrels per day.

Third Quarter Revenue Jumped 51%

On Nov 3, the company reported third quarter results which saw revenue soar 51% to $84.9 million.

The gain was due to a 44% increase in crude oil production and a 44% increase in the average realized crude oil prices compared with the year ago period.

The average realized price in the quarter was $107.99 per barrel for crude and $4.21 per thousand cubic feet of natural gas compared to just $75.02 per barrel of crude and $4.32 per Mcf of natural gas in the third quarter of 2010.

Oil production in the quarter was 97% crude and 3% natural gas liquids.

Energy Partners actually missed on the Zacks Consensus Estimate by 7 cents. Earnings per share were 28 cents compared to the consensus of 35 cents.

The company has an awful track record at beating the Zacks Consensus. It has missed each of the last 4 quarters.

It isn't missing simply because there is one estimate either. For 2012, there are 5 estimates.

2012 Zacks Consensus Estimate Rises

Despite the earnings misses, the analysts are still bullish on the earnings outlook for both 2011 and 2012.

After making just 25 cents in 2010, Energy Partners is expected to make $1.13 in 2011. That is earnings growth of 353.6%.

For 2012, further earnings growth is expected as 1 estimate has moved higher in the last month pushing the Zacks Consensus up to $1.72 from $1.65 in the last 60 days.

That is earnings growth of 52%.

Attractive Value Fundamentals

After a weak summer, shares rebounded along with crude prices. But they are still trading under the 2-year highs.

The company has attractive value characteristics including a forward P/E of just 9.2. That is well under its peers which average 15.8.

Energy Partners also has a price-to-book ratio of 1.3, which is under the 3.0 level which usually indicates value.

Energy Partners is next scheduled to report earnings on Mar 8. But with crude prices remaining elevated, the possibility of a year of double digit earnings growth in 2012 remains high.

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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