Shares of QEP Resources Inc. (QEP) tanked over 9% yesterday, marking a 52-week low of $23.00. A weak oil and gas pricing environment is the primary reason behind several energy stocks recording such declines.
Despite reporting earnings that beat the Zacks Consensus Estimate in two consecutive quarters, the stock has witnessed a fall of nearly 24% since the beginning of 2014. QEP Resources’ current quarter and current year estimates moving south indicate further bearish sentiment on the stock.
What Led to the Share Price Decline?
QEP Resources is primarily a natural gas dominated firm, as the commodity comprises over 60% of its proved reserve base. The exploration and production company is feeling the pressure of the weak natural gas pricing environment, with the commodity falling below the $4 per MMBtu mark.
Moreover, reduced natural gas consumption levels and strong inventory data add to the woes. The company’s oil-linked exposure also fails in providing favorable results in the current scenario. Oil prices, which had reached the $100 per barrel mark, are now trading below the $90 per barrel level.
QEP Resources’ high debt levels make it more vulnerable to an extended drop in commodity prices. As of Jun 30, 2014, the company had long-term debt of $3.9 billion, representing a debt-to-capitalization ratio of 50.6%.
However, QEP Resources has a diversified asset base, substantial exposure to emerging plays and quality acreage in multiple basins that add value to the stock. Also, the possible split of its midstream segment is expected to enhance shareholders’ worth.
Zacks Rank & Other Stock Picks
Currently, QEP Resources carries a Zacks Rank #3 (Hold).
Meanwhile, one could consider better-ranked players from the oil and gas exploration and production industry like Cobalt International Energy, Inc. (CIE), World Point Terminals, LP (WPT) and Abraxas Petroleum Corp. (AXAS). While Cobalt International and World Point Terminals sport a Zacks Rank #1 (Strong Buy), Abraxas Petroleum holds a Zacks Rank #2 (Buy).
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