Due to the sanctions imposed on Russia for invading Ukraine, natural gas prices are surging. The United States has banned Russian oil, gas, and coal imports and the European Union says they plan to reduce Russian gas imports by 66% by the end of 2022.
So, it’s not surprising that natural gas has rallied more than 50% since mid-February. With no end to the war in sight, natural gas prices could continue to rally for the foreseeable future.
Today’s featured stock - Sandridge Energy (SD) - is perfectly positioned to capitalize on these trends driving natural gas prices higher in the short and long term. Read on to discover what makes it so intriguing…
Company Background
SD was founded in 2006 and is headquartered in Oklahoma. The company acquires, develops, and produces oil and natural gas. It operates primarily in the United States Mid-Continent.
At the start of the year, it had an interest in 817.0 net producing wells; and operated approximately 368,000 net leasehold acres in Oklahoma and Kansas, as well as total estimated, proved reserves of 71.3 million barrels of oil equivalent.
SD has had a remarkable turnaround over the 2 past years as its stock price is up by 2,136% from its bottom in March 2020. The major factors are strength in oil and natural gas as well as the company avoiding bankruptcy by securing a low-interest loan from investor Carl Icahn and selling assets at better than expected prices.
Catalysts
SD also went through a severe restructuring process to streamline operations, reduce costs, and pay off its high-interest-bearing debt. This is paying off as the company had $2.20 per share in free cash flow over the last 12 months, while this figure was negative in the pre-pandemic period.
As a result, operating margins have gone from 8% in 2019 to 47% in 2021. In total, the company has started operating 129 wells that were turned off during the crash in energy prices in 2020. And, there’s no reason to expect a reversal given recent developments and the bullish trend in energy prices.
Russia’s invasion of Ukraine is going to have major implications. One implication will be Europe weaning itself off Russian energy, and part of the solution will be LNG exports from North America especially given that the US has an abundance of it. It also means more North American energy production, and SD is one of the largest owners of oil and gas deposits.
Momentum
SD has strong momentum from multiple perspectives. The stock has a 60% gain YTD and 323% over the past year.
It’s also evident in its recent earnings report which showed revenue growth of 77% and a stunning EPS turnaround from a loss of $1.64 per share to earning $1.01 per share. Cash went from $28 million in last year’s Q4 to $129 million last quarter.
Further, Q1 results are assured to be much better given the recent rise in oil and gas prices. The average price per barrel sold was $75. This figure should be at least 25% higher in Q1. The entire oil and gas complex has shown remarkable capital discipline in terms of not aggressively increasing production and exploration in response to soaring prices. This also increases the odds that the bull market will last for a long time.
POWR Ratings
This promising outlook is reflected in SD’s POWR Ratings. The stock has an overall B rating, which translates to Buy in our proprietary rating system. B-rated stocks have posted an average annual performance of 21.1% which compares favorably to the S&P 500’s average annual 8.0% gain.
In terms of component grades, SD has a Momentum grade of A due to its recent earnings growth and stock price performance. The surge in oil prices is one factor behind its Growth grade of A. In the 14-stock Energy – Drilling industry, it is ranked #1. Click here to see SD’s complete POWR Ratings.
SD shares were trading at $16.42 per share on Tuesday afternoon, down $0.40 (-2.38%). Year-to-date, SD has gained 56.98%, versus a -4.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
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