Oil & Gas Stocks

Denbury Resources Inc. Valuation – November 2015 Update $DNR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Denbury Resources Inc. (DNR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Denbury Resources Inc. is an independent oil and natural gas company. The Company’s operations are focused in two operating areas: the Gulf Coast and Rocky Mountain regions. The Company’s properties with proved and producing reserves in the Gulf Coast region are situated in Mississippi, Texas, Louisiana and Alabama, and in the Rocky Mountain region are situated in Montana, North Dakota and Wyoming. The Company’s primary Gulf Coast CO2 source is Jackson Dome. The Company’s mature group of properties includes the initial CO2 field, Little Creek, as well as several other fields, including Brookhaven, Cranfield, Eucutta, Lockhart Crossing, Mallalieu, Martinville, McComb and Soso fields. The Company also holds interest in the 183-mile NEJD CO2 pipeline that runs from Jackson Dome to near Donaldsonville, Louisiana.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DNR – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,489,380,215 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.46 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -123.21% Fail
6. Moderate PEmg Ratio PEmg < 20 -16.58 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.33 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.46 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 19.75 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

DNR value Chart November 2015

EPSmg -$0.25
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth -$3.67
MG Value based on 0% Growth -$2.15
Market Implied Growth Rate -12.54%
Current Price $4.20
% of Intrinsic Value N/A

Denbury Resources Inc. does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The company now fails every Defensive Investor requirement, and only passes the Enterprising Investor’s requirement of dividend payments. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from a gain of $0.88 in 2011 to an estimated loss of $0.25 for 2015.  This level of demonstrated earnings growth does not support a positive valuation.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Denbury Resources Inc. (DNR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

DNR Charts November 2015

Net Current Asset Value (NCAV) -$15.82
Graham Number #NUM!
PEmg -16.58
Current Ratio 1.46
PB Ratio 0.33
Dividend Yield 6.00%
Number of Consecutive Years of Dividend Growth 2

 

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Most Recent Balance Sheet Figures

Total Current Assets $558,382,000
Total Current Liabilities $382,641,000
Long-Term Debt $3,471,141,000
Total Assets $10,495,300,000
Intangible Assets $1,261,512,000
Total Liabilities $6,095,269,000
Shares Outstanding (Diluted Average) 350,039,000

Earnings Per Share History

Next Fiscal Year Estimate -$3.70
Dec14 $1.81
Dec13 $1.11
Dec12 $1.35
Dec11 $1.43
Dec10 $0.72
Dec09 -$0.30
Dec08 $1.54
Dec07 $1.00
Dec06 $0.82
Dec05 $0.70
Dec04 $0.36
Dec03 $0.26
Dec02 $0.22
Dec01 $0.28
Dec00 $0.77
Dec99 $0.03
Dec98 -$2.77
Dec97 $0.18
Dec96 $0.16
Dec95 $0.03

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$0.25
Dec14 $1.41
Dec13 $1.09
Dec12 $1.04
Dec11 $0.88
Dec10 $0.66
Dec09 $0.67
Dec08 $1.06
Dec07 $0.76
Dec06 $0.58
Dec05 $0.43
Dec04 $0.32
Dec03 $0.30
Dec02 $0.12
Dec01 -$0.05
Dec00 -$0.26
Dec99 -$0.67

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Enterprising Investor – October 2015
5 Undervalued Companies for Value Investors with a High Beta – October 2015
10 Companies Benjamin Graham Would Invest In Today – October 2015
The Best Companies of the Oil & Gas Industry – August 2015
10 Low PE Stocks for the Enterprising Investor – August 2015

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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