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Oil & Gas Stocks

Carrizo Oil & Gas Inc Valuation – August 2018 $CRZO

Company Profile (excerpt from Reuters): Carrizo Oil & Gas, Inc. (Carrizo), incorporated on September 24, 1993, is an energy company. The Company is engaged in the exploration, development and production of oil and gas from resource plays located in the United States. Its operations are focused in proven, producing oil and gas plays in the Eagle Ford Shale in South Texas, the Delaware Basin in West Texas, the Utica Shale in Ohio, the Niobrara Formation in Colorado, and the Marcellus Shale in Pennsylvania. As of December 31, 2016, the Company’s proved reserves of 200 million barrels of oil equivalent (MMBoe) were 64% crude oil, 12% natural gas liquids (NGLs) and 24% natural gas. As of December 31, 2016, it operated approximately 94% of the wells in Eagle Ford in which it held an interest. As of December 31, 2016, it held an average interest of approximately 85% in these operated wells. As of December 31, 2016, it owned leases covering approximately 309,200 gross (179,179 net) acres in the Eagle Ford, Niobrara, Utica and the Delaware Basin areas.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CRZO – August 2018

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 $2,230,812,793 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.26 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 53.70% Pass
6. Moderate PEmg Ratio PEmg < 20 -6.09 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.41 Fail
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 0.26 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -4.05 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$4.00
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$58.02
MG Value based on 0% Growth -$34.01
Market Implied Growth Rate -7.29%
Current Price $24.35
% of Intrinsic Value N/A

Carrizo Oil & Gas Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.34 in 2014 to an estimated $-4 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Carrizo Oil & Gas Inc revealed the company was trading above its Graham Number of $13.99. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -6.09, which was below the industry average of 59.52, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-23.73.

Carrizo Oil & Gas Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$23.73
Graham Number $13.99
PEmg -6.09
Current Ratio 0.26
PB Ratio 3.41
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $132,505,000
Total Current Liabilities $503,531,000
Long-Term Debt $1,502,307,000
Total Assets $2,721,839,000
Intangible Assets $0
Total Liabilities $2,122,513,000
Shares Outstanding (Diluted Average) 83,853,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.91
Dec2017 $1.06
Dec2016 -$11.27
Dec2015 -$22.45
Dec2014 $4.90
Dec2013 $1.06
Dec2012 $1.39
Dec2011 $0.92
Dec2010 $0.29
Dec2009 -$6.61
Dec2008 -$1.49
Dec2007 $0.57
Dec2006 $0.71
Dec2005 $0.42
Dec2004 $0.49
Dec2003 $0.43
Dec2002 $0.26
Dec2001 $0.57
Dec2000 $0.74
Dec1999 -$0.07
Dec1998 -$2.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$4.00
Dec2017 -$6.42
Dec2016 -$8.53
Dec2015 -$5.72
Dec2014 $2.34
Dec2013 $0.51
Dec2012 -$0.21
Dec2011 -$1.10
Dec2010 -$1.84
Dec2009 -$2.36
Dec2008 -$0.11
Dec2007 $0.56
Dec2006 $0.52
Dec2005 $0.43
Dec2004 $0.46
Dec2003 $0.42
Dec2002 $0.23

Recommended Reading:

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Carrizo Oil & Gas Inc Valuation – Initial Coverage $CRZO

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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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