Back to top

Analyst Blog

On Jan 14 we reiterated our long-term Neutral recommendation on Forest Oil Corporation (FST - Analyst Report) as it is proactive in expanding its liquid production and growing its upstream presence. However, the tepid gas price scenario keeps us on the sidelines. The stock retains a Zacks Rank #3, which is equivalent to a short-term Hold rating.

Why the Reiteration?

Denver-based independent oil and gas company, Forest Oil’s effort to expand its liquid production in order to maximize margin is gaining traction.

The company added considerable acreage in the Permian Basin in 2011 and early 2012, giving it access to potential oil resources in several oil-bearing pay zones, including the Wolfbone and Wolfcamp Shale plays. Production forecast for the second half of 2012 is mainly centered on oil, which is prudent in the light of weak gas prices.

Forest Oil has a growing upstream presence in the emerging basins of Texas, Canada and Mexico. Production growth from the Eagle Ford Shale is a key component of the company’s overall annual upstream growth plans over the next few years.

However, on the flip side, the company has a highly gas-weighted reserves/production profile (natural gas accounted for more than 66% of total production in the third quarter of 2012) and exposure to the inherently cyclical and volatile exploration and production sector. This is not helped by its highly levered balance sheet. Long-term debt (including current portion) stood at $2,092.4 million, representing a debt-to-capitalization ratio of 89.6% at the end of the third quarter.

The company nonetheless is intent on divesting its non-core properties to boost financial strength and flexibility. We believe this will eventually allow the company to aggressively pursue growth opportunities in its plays and provide meaningful upside potential for investors.

We witnessed no earnings momentum for the stock over the last 60 days for the fourth quarter as well as 2012. The Zacks Consensus Estimates for the fourth quarter and full year 2012 are currently pegged at 12 cents and 39 cents per share, respectively. This reflects year-over-year decrease of 33.0% and 55.1% for the quarter and full year, respectively.

Other Stocks to Consider

Stocks within the oil and gas sector worth considering are Cabot Oil & Gas Corp (COG - Analyst Report) and Sunoco Logistics Partners L.P. (SXL - Analyst Report). Both have attractive prospects and carry a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
PLANAR SYST… PLNR 4.44 +5.21%
BITAUTO HOL… BITA 81.71 +5.12%
CTPARTNERS… CTP 16.66 +4.26%
CHINA BIOLO… CBPO 47.91 +3.30%
MALLINCKROD… MNK 72.94 +2.85%