On Nov 28, Zacks Investment Research downgraded Enerplus Corporation ERF – an upstream energy player – to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Being an exploration and production company, Enerplus generates cash flows by selling oil and natural gas it produces. Commodity prices have been low for a prolonged period of time. Moreover, there is almost no hope of future commodity prices recovering soon.
To say in another way, yesterday crude traded at $41.65 per dollar, much below the $100 plus per-barrel mark in July 2014. This plight is being blamed mostly on oversupply of the commodity.
Natural gas has also not fared well. From a peak of about $13.50 per MMBtu in 2008 to below $3 now – sinking in between to a 10-year low of under $2 in 2012 – the plummeting value of natural gas represents a decline of around 80% over seven years. With production from major shale plays remaining strong and the commodity’s demand failing to keep pace with this supply surge, natural gas prices have been held back. Even summer cooling demand was of little help.
All we can say is that consistently low oil and gas prices are expected to hamper the future earnings of the company. Most importantly, owing to the persistent pricing weakness, the company has lowered its monthly cash dividend from 5 Canadian cents per share to 3 Canadian cents.
Following the negatives, downward estimate revisions for the company was obvious. The Zacks Consensus Estimate for the company for fourth-quarter 2015 has moved south by 83.3% over the past 30 days and currently stands at a penny per share.
Stocks That Warrant a Look
Not all stocks are expected to perform poorly as Enerplus. Better-placed players in the energy sector include Energy Transfer Equity LP ETE, Boardwalk Pipeline Partners LP BWP and Ferrellgas Partners LP FGP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment