Have you been paying attention to shares of
Earthstone Energy (ESTE)
? Shares have been on the move with the stock up 20.7% over the past month. The stock hit a new 52-week high of $16.24 in the previous session. Earthstone Energy has gained 45.7% since the start of the year compared to the 32.4% move for the Zacks Oils-Energy sector and the 47.7% return for the Zacks Oil and Gas – Exploration and Production – United States industry.
What’s Driving the Outperformance?
The stock has an impressive record of positive earnings surprises, as it hasn’t missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on March 9, 2022, Earthstone Energy reported EPS of $0.46 versus consensus estimate of $0.39 while it beat the consensus revenue estimate by 32.79%.
For the current fiscal year, Earthstone Energy is expected to post earnings of $2.99 per share on $1.16 billion in revenues. This represents a 140% change in EPS on a 176.73% change in revenues. For the next fiscal year, the company is expected to earn $3.43 per share on $1.19 billion in revenues. This represents a year-over-year change of 14.5% and 2.22%, respectively.
Valuation Metrics
Earthstone Energy may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
Earthstone Energy has a Value Score of C. The stock’s Growth and Momentum Scores are B and B, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 5.3X current fiscal year EPS estimates, which is not in-line with the peer industry average of 6.8X. On a trailing cash flow basis, the stock currently trades at 6.6X versus its peer group’s average of 6.6X. This isn’t enough to put the company in the top echelon of all stocks we cover from a value perspective.
Zacks Rank
We also need to consider the stock’s Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Earthstone Energy currently has a Zacks Rank of #1 (Strong Buy) thanks to favorable earnings estimate revisions from covering analysts.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Earthstone Energy meets the list of requirements. Thus, it seems as though Earthstone Energy shares could still be poised for more gains ahead.
How Does ESTE Stack Up to the Competition?
Shares of ESTE have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is
Laredo Petroleum, Inc. (LPI)
. LPI has a Zacks Rank of # 2 (Buy) and a Value Score of A, a Growth Score of A, and a Momentum Score of B.
Earnings were strong last quarter. Laredo Petroleum, Inc. beat our consensus estimate by 2.11%, and for the current fiscal year, LPI is expected to post earnings of $32.10 per share on revenue of $1.62 billion.
Shares of Laredo Petroleum, Inc. have gained 14.6% over the past month, and currently trade at a forward P/E of 2.67X and a P/CF of 4.03X.
The Oil and Gas – Exploration and Production – United States industry is in the top 5% of all the industries we have in our universe, so it looks like there are some nice tailwinds for ESTE and LPI, even beyond their own solid fundamental situation.
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