Natural Gas Powers Energen's Growth

9/27/2010


  Recent Price
$45
  Dividend
$0.52
  Yield

1.2%

  P/E Ratio
12
  Shares (millions)
72
  Long-Term Debt as % of Capital
16%
  52-Week Price Range
$49.94 - $40.25

Investors don’t know what to make of Energen ($45; EGN). It is classified as a utility stock, but it generated only 43% of revenue and 19% of profits from its natural-gas utility, getting the rest from energy exploration and production. The Forecasts has created a special industry group for such companies: utility/energy hybrids.

Energen qualifies as a Quadrix elite in the utility sector, earning a 12-Factor Sector score of 99 and Reranked Overall of 96 to go along with an Overall score of 82. Even among the utility/energy hybrids, which tend to earn higher scores than the average utility, Energen stands out, boasting the group’s highest Overall and sector-specific scores.

Over the last decade, sales rose at an annualized rate of 11%, while per-share operating profit grew at a 19% clip. That operating momentum ground to a halt in 2009, hurt by weak energy prices and lower industrial activity. But in the six months ended June, revenue is up 15% from year-ago levels, sparking a 21% increase in per-share profits. Energen is a Long-Term Buy.

Business breakdown

Energen operates the largest natural-gas utility in Alabama, serving more than 440,000 customers. The utility powers the company’s dividend, raised for 28 consecutive years.

The nonregulated business involves the production of natural gas (53% of the segment’s revenue in the year ended June), oil (39%), and liquefied natural gas (8%). The company owns fields in New Mexico, Colorado, Texas, Louisiana, and Alabama.

Energen company wrote off $10 million ($0.14 per share) on an energy property in the June quarter and said it will take a $14.4 million charge ($0.20 per share) in the September quarter to write down an Alabama shale property found unfit for production. While these costs illustrate the uncertain nature of the business, Energen does hedge its production to limit the effect of volatile energy prices.

Roughly 72% of estimated 2010 production is hedged. The average hedge price for oil is $84.57 per barrel, 14% above the current spot price; natural gas is hedged at $7.93 per thousand cubic feet, 98% higher.

Conclusion

In September, the U.S. Department of Energy lowered its 2010 forecast for natural-gas prices, reflecting uncertainty regarding the economic recovery and a surge in supply. Spot prices have slumped to 11-month lows, and U.S. production of natural gas has reached its highest level since 1974 as new drilling technologies help companies harvest shale formations formerly unattainable. Low natural-gas prices have driven more utilities to adopt the cleaner fuel.

Wall Street expects Energen to earn $4.45 per share this year, up 27% on 14% higher revenue. The 2011 consensus projects a 17% decline in per-share profits, hurt by concerns that high gas supplies and a moderation in demand growth could lower prices. However, Energen trades at 12 times that conservative 2011 estimate, 17% below the average for utility/energy hybrids. An annual report for Energen Corp. is available at 605 Richard Arrington Blvd. N., Birmingham, AL 35203; (205) 326-2700; www.energen.com.

ENERGEN
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Jun '10 $0.77 vs. $0.76 + 9% $49.94 -

$40.25

13 - 11
Mar '10 1.62 vs. 1.33 + 19% 49.16 - 41.63 14 - 12
Dec '09 0.81 vs. 0.91 - 3% 48.88 - 41.20 14 - 11
Sep '09 0.61 vs.

1.01

- 14% 45.78 - 35.38 11 - 9
           
Year
(Dec.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2009 $1.44 $3.51 $0.50 $48.88
-
$23.18 14 - 7
2008 $1.57 $4.38 $0.48 79.57
-
23.00 18 - 5
2007 $1.44 $4.28 $0.46 70.41
-
43.78 16 - 10
2006 $1.34 $3.16 $0.44 47.60
-
32.16 15 - 10
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
82 58 86 76 80 17 37

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com