Plains Exploration & Production Company (PXP)

TrackZacks (< 20) Submitted: 6/11/08 6:02 PM : Start Price: $75.32 PXP Score: -40.29

Plains Exploration Initially a Buy

Posted Wed Jun 11, 02:12 pm ET
Posted By: Neil Malkin

We are initiating coverage of Plains Exploration and Production (PXP) with a Buy recommendation and a six-month price objective of $84.00. Two major accretive acquisitions have given the company an impressive value proposition, growth and stable cash flows.

In 2008, we see the company growing production by approximately 50%. Record crude oil prices and favorable natural gas prices will help expand operating margins and earnings. We see the company growing earnings by roughly 170% in 2008.

PXP has a strong balance sheet with a low debt-to-market capitalization ratio. With nearly $700 million remaining on its credit facility and its cash flow from operations, the company should be able to finance its capital expenditures and working capital needs. Additionally, the company can raise capital by selling its assets. Lastly, operating cash flows have allowed the company to buy back up to $1 billion in common stock.

PXP usually has a P/E multiple that trades between 14x 18x forward earnings and an Enterprise Multiple (EV/EBITDA) that trades between 6x 8x forward EBITDA. We believe that PXP will trade around current levels as the market has priced in the growth in 08 and 09. Based off of our estimated production and commodity price assumptions, we see 2009 EPS of $5.33 per share.

A price objective of $84.00 yields a forward P/E of 15.7x and an Enterprise Multiple of 6.9x, both of which are within historical levels. Currently trading around $75 per share, this gives investors an approximate 12% return.

Read the full analyst report on PXP
http://register.zacks.com/ucd/step1.php?ALERT=FOOL_ZER&d_alert=ZER_CONF&t=pxp&ADID=FOOL_ZERFEED

Report this Post Replies: 0 | Reply | Permalink