Imperial Capital: Energen Is 'Doing All The Right Things,' And Its Valuation Shows It

Energen Corporation EGN, an oil exploration and production company that focuses on the Permian Basin, reported Tuesday morning with second-quarter results that came in better than expected, but prompted Imperial Capital to downgrade the stock.

The Analyst

Imperial Capital's Irene Haas downgraded Energen from Outperform to In-Line with an unchanged $74 price target.

The Thesis

Energen reported a strong Q2 highlighted not only by an EPS and EBITDA beat, but oil, gas and NGL volumes that were 7-, 2- and 13-percent better than expected, Haas said in the downgrade note. (See the analyst's track record here.) 

The company lifted its production guidance midpoint by around 5 percent for the full year 2018, as management expects multiple wells to come online in the third quarter, the analyst said. 

Energen deserves credit for properly managing its assets in the Permian, where 60 percent of its production mix is oil, Haas said. This positions the company very well to achieve a 28-percent compounded annual production growth rate, and management is backed by a strong balance sheet at around 1 times net debt to EBITDA, according to Imperial. Yet the stock also appears to be fairly valued, with the share price accurately reflecting that Energen is "doing all the right things," Haas said. 

Imperial Capital's $74 price target is derived from the addition of proven reserves of $35 per share, probable reserves of $36 per share, possible reserves of $13 per share and net 2018 projected debt of $10 per share.

Price Action

Energen shares were trading down 2.22 percent to $72.20 at the time of publication Wednesday.

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