Several weeks ago, Exco Resources reported second-quarter operating-earnings per share and cash-flow-per share of 18 cents and 69 cents, respectively, roughly in line with consensus estimates of 18 cents and 67 cents, respectively.
Second-quarter production at Exco (ticker: XCO) averaged 500 million cubic-feet-per day, up 23% sequentially.
Production is expected to ramp throughout the year with a projected-exit rate north of 600 million cubic-feet-per day. For 2012, we are projecting 681 million cubic-feet-per day, or 32% growth.
[We rate Exco at Market Perform.]
As previously reported, Exco's Special Committee did not accept management's buyout offer (commenced November 2010 for $20.50 per share). Thus, as a going concern, we are updating our financial model and investment thesis to incorporate current guidance.
However, we are reluctant to embrace pure-play natural-gas growth companies in the current pricing environment. As such, despite robust growth from the Haynesville shale [in Louisiana], we are lowering our price target to approximate our proved-only net-asset-value estimate of about $13 [from $20].
Due to changes in our oil and natural-gas price forecasts, actual second-quarter results, and other modeling changes, we have revised our EPS estimates as follows: 2010, to 70 cents from 62 cents; 2011, to 87 cents from $1.05.
Source: Barron's
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