On Jul 18, Denbury Resources Inc. (NYSE:DNR) was downgraded to a Zacks Rank #5 (Strong Sell), reflecting the company’s declining proved crude reserves and weak financials.
Key Factors
Total proved reserve at Denbury has been declining steadily over the last two years. Since 2014, estimated reserves fell over 40%, which is a serious matter of concern. Declining reserves raise questions over the company’s production capabilities which might hurt cashflow for shareholders.
Moreover, cash balances at Denbury have been on the decline since 2015, resulting in the current low of $2 million as of Mar 31, 2017. In comparison, long-term debt is at around $3 billion, leading to a debt-to-capitalization ratio is 86.03%, which is much higher than the broader industry average of 49.35%. Hence, a high debt load and weak cash balance hint at the company’s deteriorating financials.
Since the beginning of 2013, there has been a steady decline in cashflow from the company’s core operations. Notably, over the same time frame, operating cashflow fell below $300 million from roughly $1400 million. Weak operations following persistently soft oil and natural gas prices compelled the company’s board of directors to suspend dividend payment from the beginning of the fourth quarter of 2015.
Investors should also know that Denbury has underperformed the Zacks categorized Oil & Gas-U.S Exploration & production industry over the last one year. During the period, the company lost almost 56.6% as compared with a roughly 19% decline of the broader industry.
Following those fundamental drawbacks, the Zacks Consensus Estimate for the company’s second-quarter bottom line has been revised to a loss of 1 cent from earnings of 1 cent over the last 60 days. Also, the Zacks Consensus Estimate for the bottom line of full-year 2017 has been revised from earnings of 14 cents to a loss of 2 cents over the same time frame.
Stocks to Consider
A few better-ranked players in the energy sector are SeaDrill Limited (NYSE:SDRL) , Dominion Energy Midstream Partners LP (NYSE:DM) and Petrobras (NYSE:PBR) . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SeaDrill managed to surpass the Zacks Consensus Estimate in each of the last four quarters, with an average positive earnings surprise of 97.13%.
Dominion’s 2017 earnings will likely grow over 9.6% year over year.
We expect year-over-year earnings growth of almost 74.4% at Petrobras in 2017.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>
Petroleo Brasileiro S.A.- Petrobras (PBR): Free Stock Analysis Report
Seadrill Limited (SDRL): Free Stock Analysis Report
Denbury Resources Inc. (DNR): Free Stock Analysis Report
Dominion Midstream Partners, LP (DM): Free Stock Analysis Report
Original post