Stock of the Week
NYSE Symbol: NBL
Industry: Oil and Natural Gas
Price as of 11/5: $74.59
The major averages finished out October with a 4.5% rally thanks to better than expected earnings. While the major averages may hit a couple bumps in the road here in November, the next six months still look good. To help propel the markets higher many analysts expect global growth to improve. An Economic revival would be good for the beaten down material sector and the underperforming energy space. This week we'll highlight an oil and natural gas company that reported spectacular earnings in October. The stock of the week is Noble Energy. Noble Energy is a leading independent energy company engaged in worldwide oil and gas exploration and production. The Company has core operations onshore in the US primarily in the DJ Basin, Niobrara and Marcellus shale fields, in the deepwater Gulf of Mexico, offshore Eastern Mediterranean, and offshore West Africa. Noble and their shareholders are excited about the Niobrara/ Dj Basin fields in Colorado and the Tamar field off the coast of Israel which have the potential to produce huge reserves in both oil and natural gas in the coming years for Noble. Noble stock's has run up 50% year to date and only provides a modest dividend, but investors looking for a growth play in the oil and natural gas industry with plenty of potential in the coming years, may be a good investment on any pullbacks.
Back on October 24th, Noble Energy's net income slipped to $205 million, or 56 cents per share, in the quarter from $221 million, or 61 cents per share, last year. Excluding one-time charges, Noble earned 97 cents per share beating estimates by a penny. Revenues rose 38.7% year over year to $1.39 billion verse estimates of $1.38 billion. The earnings growth stemmed from increased production activities in the domestic plays as well as higher sales from Noble Energy's Tamar natural gas field and Alen condensate field in offshore Israel and Equatorial New Guinea, respectively. In the fourth quarter, Noble expects strong underlying production growth from its US onshore unconventional and deepwater Gulf of Mexico assets to continue to improve. Following their earnings, Noble conducted a transaction with Anadarko Petroleum to exchange 50,000 net acres in the Wattenberg and Niobrara area of Colorado to consolidate their land thereby reducing costs and expanding production. Noble expects 20% growth next year from their Niobrara /DJ Basin business and a triple in oil production over the next five years in Colorado. If they reach their goal, the company will produce more oil than the entire state currently delivers.
Besides the shale fields in Colorado, Noble also has the Tamar and Leviathan fields off the coast of Israel that are estimated to have as much as 30 trillion cubic feet of natural gas, which is enough gas to supply Israel for decades even if it were to convert all of its energy consumption from coal and oil to natural gas with enough left over to export. Noble Energy estimates that this gas field and the planned export projects could net the country more than $130 billion in energy savings and government revenue from gas royalties. The nation's proven reserves account for more than 30% of Noble's proved reserves, and will likely be one of the company's premier energy plays for decades to come. On top of that, the U.S. Geological Survey estimates there are more than 600 million barrels of recoverable oil in the Leviathan field, which could boost the company's reserves by another 17%.
Noble Energy is not a cheap stock and not our typical value play. Currently, the stock trades for 17 times earnings, 4 times sales and a modest dividend of 0.7%. However the company is growing sales by 20% and earnings by 30% so it won't take Noble long to grow into their earnings and sales numbers. The analyst community is warmings up to the stock. The analyst at Wunderlich raised their price target to $84 from $72 indicating the company is actively drilling wells in four frontier plays, providing multiple catalysts. FBR has the most aggressive price target of $115 up from $105. Noble is not a conservative play, but a fast growth play in the oil and gas industry with great growth prospects thanks to their presence in some of the most lucrative oil fields on the planet.