EXCO Resources, Inc. (XCO) has seen its stock double since March 2 as crude prices rallied in May. As commodities prices took off, so did estimates with full-year consensus estimates jumping 44.3% in the last month.

Company Description

EXCO Resources is an independent oil and natural gas exploration company. It focuses on North America with operations in Appalachia, East Texas, North Louisiana, Mid-Continent, Permian Basin and the Rockies.

EXCO Reports Record Daily Production in the First Quarter

On May 5, EXCO announced first-quarter results which surprised on analysts’ estimates by 11.76%, or 2 cents a share. Adjusted earnings per share were 19 cents compared with 28 cents in the first-quarter of 2008 as crude and natural gas prices soared in the first quarter a year ago. EPS was 13 cents in the fourth-quarter of 2008. Analysts expected just 17 cents.

Revenue fell to $172 million from $325 million in the year ago period. This isn’t surprising given that natural gas prices fell 47% while oil fell 61% compared to a year ago.

However, the company saw record daily production of 404 Mmcfe per day for the first quarter which was obtained despite lower drilling and completion activity as commodity prices fell.

Given that natural gas prices remain near 6-year lows, the company has been decreasing its drilling activity and has adjusted its capital expenditure program.

$582 million was approved in the budget for 2009, of which $326 million was for drilling and completion. However, EXCO now expects the budget to come in at $500 million, with only $266 million for drilling and completion, given the low commodity prices.

The company is adjusting to the commodity price reality.

“During the remainder of 2009, we will continue to aggressively develop the Haynesville, will continue to ramp up our activity in the Marcellus shale in Appalachia and focus on our balance sheet,” said Douglas H. Miller, Chairman and CEO.

“With our current asset base and our success in the Haynesville shale we expect to maintain and grow our production despite our reduced drilling activity in other areas.”

“Our cash flow for 2009 and 2010 will be greatly enhanced by our strong hedge position and the positive results from our drilling program,” he added.

Consensus Estimates Rise

Covering analysts like what they see so far in 2009 as estimates have moved sharply higher in the last month. Second-quarter estimates jumped 67% to 25 cents from 15 cents during that period.

Full-year consensus estimates rose by 31 cents to $1.01 per share in the last 30 days with 6 out of 6 analysts raising during that time.

Solid Fundamentals

EXCO Resources is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 15.43. The company has a stellar 1-year return on equity (ROE) of 16.44%.

Shares Followed Crude Prices Higher

As crude prices spiked in May, EXCO’s share price also jumped. The stock has doubled off of its March 2 lows, see the chart below.

Zacks Investment Research
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