Kodiak Oil & Gas Inc.

By: Jared Levy

January 14, 2012 |Comments: 0

KODIAK OIL & GAS CORP (KOG)

This “under the radar” Bakken Shale oil and gas company could have big upside potential. On his January 12th episode of mad money, Jim Cramer was screaming “buy, buy, buy” on the pull back. It hit Zacks Rank Buy as a “1” ahead of the recent rally and Jim Cramer’s call, but the recent pullback may be reason for us to look to Kodiak again for another run.

Company Description & Developments
Crude oil cannot stay out of the headlines. More importantly, you can’t pry it from the needy hands (and machinery) of much of the world’s citizens, especially when it comes to transportation.

For us in the in the United States of America, we are doing all we can to reduce our foreign dependence on oil. Projects like the Keystone XL pipeline which will bring Canadian Oil from their rich sands will help us break this dependence. But we need to do more!

The Bakken Shale which spreads widely over the northwestern US (Montana, North Dakota) and into Canada is said to have reserves richer than some of the major oil producing countries in the middle east. The US Geological Survey estimated that there are undiscovered volumes of 3.65 billion barrels of oil, 1.85 trillion cubic feet of dissolved natural gas and 148 million barrels of natural gas liquids contained within it.

Kodiak Oil & Gas, along with several other companies primarily operate in that region. Along with new discoveries Kodiak Oil & Gas stands to reap the rewards of high priced crude oil, new supply and rising natural gas prices, which have been depressed for some time.

If we do start to see colder temperatures here in the US, you can expect some bullish pressure on Natural gas prices, which should reflect positively for Kodiak Oil & Gas. This winter has been unusually mild.

Financial Profile
Kodiak Oil & Gas is a mid cap company that is trading a little over 50 times trailing earnings (P/E), which is a little rich at first glance. Looking forward, Zacks Consensus Estimates sees Kodiak’s P/E dropping to 10, with no change in price from these levels. That’s much more acceptable and cheap for an exploration company like KOG. Kodiak Oil & Gas is expected to earn $0.25 in FY2011 according to the Zacks Consensus Estimate.

Kodiak Oil & Gas recently moved into a Zacks Rank 1, when we noticed several analysts upgrading their forward earnings outlooks. The company has been showing explosive year over year growth in revenues.

We have yet to see results for the full FY2011, but Kodiak Oil & Gas is making strides to improve profitability and is running at an operating profit margin of about 27% for 2011 thus far.

Earnings Estimates
Expectations are for Kodiak Oil & Gas to make 21 cents this quarter when they report on March 8th. Future earnings estimates have been on the rise over the past months, but there were 2 out of 16 analysts who lowered their future expectations for FY2012.

There is no doubt that Oil and Gas exploration can be volatile, but if you are looking for capital appreciation, these stocks have that potential.

Kodiak Oil & Gas surprised analysts to the upside by 20% last quarter.

Market Performance & Techincals
Kodiak Oil & Gas is currently trading $1.35 under its 52 week high of $10.41. The stock has been on a serious tear over the past three months, more than doubling in value from its closing lows in October of around $4.00

Over the past year Kodiak Oil & Gas has outpaced the S&P 500 by 48% and in the past 3 months alone has gained 40% versus the index. The recent pullback is giving would-be bullish investors a chance to ride the wild oil and gas train if they so choose.

Techincals look good and the stock remains in a bullish ascending channel. Look for the 50 day moving average of $8.65 as support and perhaps a trigger for entry.