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Growth & Income

Estimates have been surging for Ecopetrol S.A. (EC - Snapshot Report) after the company delivered stellar fourth quarter results on February 15.

It is a Zacks #2 Rank (Buy).

Based on current consensus estimates, analysts project 17% EPS growth both this year and next. On top of this growth, the company pays a dividend that yields a solid 2.8%.

Valuation is attractive too with shares trading at less than 12x forward earnings.

Company Description

Ecopetrol is the largest company in Colombia and one of the 4 principal petroleum companies in Latin America. It operates under 4 business segments:

Exploration & Production: (49% of revenue)
Refining & Petrochemicals: (28%)
Transportation: (5%)
Sales & Marketing: (18%)

The company is majority owned by the Republic of Colombia (88.5%) and has a market cap of $117 billion.

Fourth Quarter Results

Ecopetrol delivered better than expected fourth quarter results on February 15. Earnings per share came in at $1.20, crushing the Zacks Consensus Estimate by 17%. It was also a 59% increase over the same quarter in 2010.

Total sales surged 57% year-over-year as total sales volume jumped 19.5% to 905.7 millions barrels of oil equivalent per day.

Meanwhile, the EBITDA margin expanded from to a whopping 47% of revenue while cash generated from operations surged 69%.

Estimates Rising

Estimates have been soaring for EC off the strong quarter, sending the stock to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2012 is now $4.96, representing 17% growth over 2011 EPS. The 2013 consensus estimate is currently $5.81, also representing 17% growth.

Attractive Fundamentals

In addition to strong growth, the company pays a dividend that yields a solid 2.8%.

And although shares of EC have been surging since its big Q4 beat, the valuation picture still looks attractive. The stock trades at just 11.7x 2012 earnings, well below its historical median of 16.5x.

It Enterprise Value/EBITDA multiple is only 7.1, also well below its historical median of 10.0.

The Bottom Line

With rising estimates, strong growth projections, a 2.8% dividend yield and attractive valuation, Ecopetrol offers a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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