The Zacks Analyst Blog Highlights: InterOil, CVR Energy, Key Energy Services, Helix Energy Solutions Group and Schlumberger

Sep 21, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Sept. 21, 2011 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: InterOil Corporation (NYSE: IOC), CVR Energy (NYSE: CVI), Key Energy Services (NYSE: KEG), Helix Energy Solutions Group (NYSE: HLX) and Schlumberger (NYSE: SLB).


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Here are highlights from Tuesday's Analyst Blog:

Oil Stocks with Earnings Energy

Crude oil prices have held up relatively well since the summer stock market correction began in July. The commodity almost seems to be discounting a milder recession than equities have been, given its singular sensitivity to a global economic slowdown.

Granted there have been new market supply dynamics at play with Libyan oil fields off-line for what may be years. And with a two-day Federal Reserve meeting in progress that may result in more certainty about cheap dollar stimulus, higher oil prices may seem "rigged" by monetary policy.

But beyond the short-term cyclical and political factors, the long-term dynamics of energy markets -- particularly ideas about "peak" oil and unstoppable rising demand from emerging economies -- will likely keep WTI crude a lot closer to $100 for the next year than $50.

So, while we wait for more evidence about the probable recession in the US and the impact of Europe's debt crisis, its a good time to assemble a buy list of strong energy names. Below are four companies to consider; a refiner, an integrated E&P, and two oilfield services companies.

InterOil Corporation (NYSE: IOC) is a $2.7 billion integrated energy company engaged in the exploration, appraisal, and development of crude oil and natural gas properties primarily in Papua New Guinea. Based in Cairns, Australia, the company is also involved in the distribution of various refined products under its branded name InterOil Products Limited.

The earnings estimate trends for IOC paint of picture of diverging expectations between this year and next. If those 2012 estimates are correct, then the stock is probably trading based on that outlook, despite the dramatic increase in 2011 earnings.

But new research could set the table for substantial upward revisions for 2012 estimates and that would make the stock likely move higher from here. IOC actually spiked $3.50 higher in the last hour of trade Friday on word that a Morgan Stanley analyst was raising estimates and his price target to $135.

None of this is confirmed, and no actual estimate revisions are yet reflected in the Zacks data. But it is worth noting that several big houses like Raymond James and BNP Paribas have targets north of $80 currently.

CVR Energy (NYSE: CVI) is a $2.3 billion independent refiner and marketer of high value transportation fuels and, through a limited partnership called CVR Partners (UAN), a producer of ammonia and urea ammonia nitrate fertilizers.

CVR's earnings outlook has improved recently, with one of four covering analysts pushing estimates to the positive growth side for 2012 and raising current year expectations from a 900% increase.

Trading at under 7 times forward estimates, CVI offers nice value in a small, aggressive growth company. Plus you get the kicker of its majority stake in a profitable and rapidly growing fertilizer company.

Key Energy Services (NYSE: KEG) is one of the largest providers of onshore oil and gas well services in the United States and Argentina. In addition to it full range of maintenance and workover services to major E&P firms, they also provide services which include the completion of newly drilled wells, the recompletion of existing wells and the plugging and abandonment of wells at the end of their useful lives.

I have looked at KEG a few times this summer and watched its share price go from $16 to $20 and now back to $12. Given the fact its earnings momentum is strong enough to earn it a Zacks #1 Rank, I find its growth very attractive trading at 12.5 times forward estimates.

It's hard to argue with the earnings growth picture that analysts see in this name. If they only earn $1.50 next year, at $12 the company is trading at only 8 times 2012 estimates. But let's look at one more cheap oilfield services name to give you another choice.

Helix Energy Solutions Group (NYSE: HLX) is a leading marine contractor and operator of offshore oil and gas properties and production facilities. The company's unique integration of marine contracting and oil and gas operations provides custom solutions to producers and is designed to add stability to revenues and earnings in an industry as cyclical as energy.

Helix and Key share some valuation metrics in addition being oilfield service providers and this fact should inspire further research into their business models and exposure to different global markets. Both are about $1.75 billion in market cap and HLX is trading at 12.1 times F1 earnings.

Comparing these two companies and trying to pick the winner may only offer a coin-flip's chance of success. But if you know your investment goals and time frame, and you manage the risk, focusing on solid small cap energy names is a long-term formula for success.

Oilfield services is dominated by much bigger names like Schlumberger (NYSE: SLB). And the industry is ranked 23 out of 265 in the Zacks universe by virtue of its strong earnings growth. The best strategy might be to pick a giant, and a small fry.

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