Stone Energy Corp.: A Strong Buy

On Mar 20, Zacks Investment Research upgraded Louisiana-based independent oil and gas explorer Stone Energy Corp. ( SGY - Analyst Report ) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Stone Energy has been witnessing rising earnings estimates owing to better-than-expected fourth-quarter 2012 results on the back of enhanced production. The company declared impressive results on Feb 25, 2013, with earnings of 92 cents per share surpassing the Zacks Consensus Estimate of 55 cents by 67.27%.

Stone Energy’s total operating revenue increased 14% year over year to $254.9 million from $223.6 million and beat the Zacks Consensus Estimate of $240.0 million.

For the first quarter of 2013, most of the estimates (3 out of 4) were revised upward over the last 30 days, raising the Zacks Consensus Estimate by 24.53% to 66 cents per share. The Zacks Consensus Estimate also went up 12.81% to $2.29 per share for 2013 during the same time span.

Based on its track record of achieving sustained volume growth, Stone Energy guided its net daily production at 230−240 million cubic feet of gas equivalent per day (MMcfe/d) for the ongoing quarter. For full-year 2013, the company anticipates total volume in the range of 240–255 MMcfe/d.

Stone Energy is well placed in the industry with a widespread and high-yielding inventory. The company boasts an extensive capital project inventory and is generating surplus cash flow with no bank debt. Although Stone Energy aims to apportion its capital across its portfolio, the focus will be on the Gulf of Mexico shelf as well as the Marcellus region.

Other Stocks to Consider

There are other exploration and production firms that are also performing well and are worth considering. These include Continental Resources Inc. ( CLR - Snapshot Report ) , Crimson Exploration Inc. ( CXPO - Snapshot Report ) and Plains Exploration & Production Company ( PXP - Analyst Report ) . All these firms carry a Zacks Rank #2 (Buy).