Stone Energy Recommended As Buy Following Earnings Miss

Stone Energy SGY was boosted from accumulate to buy at KLR Group. The price target was cut from $47 to $46.

Analyst Gail Nicholson comments that the stock trades at a 20 percent discount to its peers, despite strong metrics. Stone Energy shares gave up 5.7 percent this week on worse than expected earnings.

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Nicholson cites the Marcellus, deepwater Gulf of Mexico and the gulf coast as three regions contributing to the growth story. The note states, “In ’14, Stone plans to spend ~$825 million. Our 3Q/14 production estimate of ~38.1 MBoepd approximates the midpoint of company guidance (37-39 MBoepd). Our ’14 production forecast of 41.8 MBoepd is ~2% above the low end of guide (41-44 MBoepd). In '15, we are modeling 20%+ growth driven by development drilling in the deepwater GOM (predominately Cardona and Cardona South) and Appalachia.”

Stone Energy’s $46 price target was derived with a 17.5 percent discount on free cash flow. The price target implies 35.2 percent upside; Stone Energy last traded hands at $34.03.