Capital One Southcoast Upgrades Energy Stocks CRZO, PQ, SGY & UPL After 4th Annual Energy Conference

November 2, 2009 10:37 AM EST

Capital One Southcoast upgrades Energy stocks after 4th Annual Capital One Southcoast Energy Conference.

Capital One analyst says, "This morning we are upgrading Carrizo Oil & Gas (Nasdaq: CRZO), PetroQuest Energy (NYSE: PQ), Stone Energy (NYSE: SGY), and Ultra Petroleum (NYSE: UPL) to ADD from NEUTRAL based on valuation as the share price for each company is 17%-31% below our target prices. Although we are concerned that the natural gas supply/demand imbalance may be improving slower than expected, as evidenced by the EIA 914 report issued Friday, we believe our commodity price deck of $5 natural gas for 2010 and $6.50 thereafter is conservative. For oil, we model $70/bbl next year and $75/bbl for 2011+. The current 2010 strips are $5.76/Mcf and $80/bbl, and the 2010-2012 strips are $6.40/Mcf and $82.89/bbl."

"We are upgrading CRZO to ADD from NEUTRAL while maintaining our $30 target price: The stock has declined 20% since our downgrade three weeks ago, and our target now offers 29% upside potential. Near-term growth is driven by the Barnett ($28 per share). We model $7 per share of North Sea value, which could be monetized to pay down their $18 per share in debt. Over the next year, we'll look for CRZO's initial results in the Marcellus ($8 per share in value.)"

"We are upgrading PQ to ADD from NEUTRAL while maintaining our target of $8: The shares have fallen 24% since our October 15 downgrade, and the current 31% upside to our target price warrants the upgrade. PQ is in a solid liquidity position with an estimated $100MM in cash available at YE09..."

"We are upgrading SGY to ADD from NEUTRAL while maintaining our $18 target price: SGY shares have dropped 17% since our mid-September downgrade and are now 17% below our target price. We believe the company's significant oil exposure (48% of current production and 42% of YE08 1P) and upside potential warrant the upgrade."

"We are upgrading UPL to ADD from NEUTRAL while raising our target price to $59 from $57: UPL has fallen 16% from its highs two weeks ago and 11% since our downgrade three weeks ago. With 22% upside to our new $59 valuation, UPL deserves an ADD rating. On Friday's release, UPL beat our production numbers by 2%, and we increased our 2009 growth estimates from 22% to 23%. UPL described their 2010 and 2011 production growth guidance of 15%-20% as conservative, which usually means they will beat the high end of guidance. We are increasing our 13% growth estimate to 15% but wouldn't be surprised if they beat our numbers, particularly if they continue their streak of success in the Marcellus."

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