Friday, July 26, 2013

Gulfport: More than the Name

The largest holding in the small-cap energy exchange traded fund Power Shares S&P Smallcap Energy (PSCE: Nasdaq) is Gulfport Energy Company (GPOR: Nasdaq), a developer of oil and natural gas properties.  Although some of its principal properties in North America are along the Gulf Coast, there is more to Gulfport is more than its name implies.  The company has interests in the Canadian oil sands, the Permian Basin in West Texas, the Utica Shale in Ohio and fields in Colorado.  A sixth property is in Thailand.  Its market capitalization of new $4.0 billion its relatively small revenue base of $238 million.  That is because Gulfport earned a fat 36.0% profit margin in the most recently reported twelve months, inspiring investors to price the stock at 36.4 times trailing earnings of $1.42 per share. 

Analysts who follow Gulfport do not have such high expectations for near term earnings, but expect stellar performance in the long term.  A recent acquisition in the Utica Shale region promises to boost future revenue streams.  The consensus estimate for 2013 is $0.83 per share and 2014 $2.02.  The stock is price at 25.5 times the 2014 consensus estimate, well below the growth rate built into earnings models.  The problem is Gulfport has disappointed its followers in three of the last four quarters, suggesting that sell-side analysts are just a bit out of sync with Gulfport’s real prospects.

Trading volume in Gulfport shares is in excess of 1.4 million shares per day.  That means about 2% of Gulfport shares not held by insiders turn over each day. More importantly 9.5 million shares have been sold short or about 13.2% of the float.  Surprise to the upside could put the ‘squeeze’ on short positions and given the size of short interest have a significant impact on the share price.

Even without the potential boost from short sellers covering positions, the consensus is decidedly bullish on GPOR.  The consensus rating is buy with a price target of $65.00 per share.  This represents 25% upside from the current price level.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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