Stone Energy Increasing Steadily

Lafayette, Louisiana-based Stone Energy Corporation (SGY - Analyst Report) is an independent oil and gas exploration and production company engaged in the acquisition and subsequent exploration, development, operation and production of oil and gas properties located primarily in the Gulf of Mexico (GoM).

Stone Energy’s third-quarter 2008 earnings were hurt by production slowdowns caused by hurricanes Gustav and Ike, which more than offset the contribution from higher oil and gas price realizations. On average, Stone produced 129 MMcfe/d during the quarter, down from 203 MMcfe/d during the year-ago period.

We are keeping our Buy recommendation unchanged at this stage following the successful completion of the Bois d'Arc acquisition and steadily increasing production that is expected to reach about 275 MMcfe/d by year-end.

In the last four weeks, the stock has dropped 19%, compared to the average gain of about 7% for our E&P coverage universe. Our continued favorable view of the stock reflects the company’s repositioned asset portfolio and improved prospects for capital discipline. Our lowered price objective ($48 vs. $55) reflects a 2009 EV/EBITDA multiple of 5.0x, in-line with the historical trading range.

Read the full analyst report on SGY