Penn West Petroleum Ltd

Sound bite for Twitter and StockTwits is: Cheap to Reasonable, Speculative. Price would seem to be cheap to reasonable. It is certainly a Speculative Buy. Analysts certainly do not see the price recovering soon with a 12 month consensus of stock price rise of only 3.3% See my spreadsheet on Penn West Petroleum Ltd.

I do not own this stock of Penn West Petroleum Ltd. (TSX-PWT, NYSE-PWE), but I used to. I bought this stock as Maximum Energy Trust (MXT.UN) in 1998. In November 2001, there was a stock exchange and stock became Ultimate Energy Fund. In June 2004 fund changed from Ultimate Energy Income Trust to Petrofund Energy. Petrofund Energy merged with Penn West in July 2006 and I got .6 of a share for each share I had.

I bought this stock as Maximum Energy Trust (MXT.UN) in 1998. I sold this stock of Penn West in 2010 as it was changing to a corporation, but they are also getting back into exploration, rather than just selling oil from their wells. They also just reduced their dividends from $.15 per share per month to $.09 per share per month.

I am tracking this stock from Maximum Energy Trust to Penn West and have tracked it since 1996. Dividends have gone up as well as down over the period I have tracked this stock. After two years of negative earnings in 2014 and 2015 the company cancelled the dividend payments in 2016. The company is not expected to make any profit over the next few years so we probably will not see any more dividends anytime soon.

The problem I see is that their long term debt level being greater than the market cap of the stock. The Debt/MC Ratio was 3.30 in 2015 and dropping down to 2.04 in the first quarter of 2016. This ratio approaching 1.00 is a real concern. It means that the market says that the company is worth less than its long term debt. This is not a good situation. In this news release Penn West expects to be in full compliance with all of their financial covenants at the end of the second quarter. (The ratio could be around 0.66 then and that ratio is fine.)

Analysts seem to think that the company will have positive FFO and CFPS in 2016 and continuing on into the future. Analysts seem to think that Revenue will drop significantly. They have been selling off assets.

There is little in stock price testing to do. Dividend Yield testing is out as dividends are discontinued. You cannot do Price/Earnings per Share test because EPS are negative.

The nearest I can get to a Graham price is one at $2.43. This is probably too high. However, the current stock price of $1.81 is just at a Price/Graham Price Ratio of 0.75. This would suggest that the stock price is relatively cheap.

I get a 10 year median Price/Book Value per Share Ratio of 0.99. The current P/B Ratio is 0.32 a value some 68% lower. The current P/B Ratio is based on a BVPS of $5.65 and a stock price $1.81. This stock price testing suggests that the stock price is relatively cheap. Generally any P/B Ratio below 1.50 suggests a stock price is cheap.

I get a 5 year low median and high P/FFO Ratio of 3.98, 5.44 and 8.39. The corresponding 10 year ratios are 4.11, 5.82 and 8.26. The current P/FFO Ratio is 5.03 based on FFO estimate for 2016 of $0.67 and a stock price of $1.81. The FFO estimate for 2016 is some 86% above the FFO for 2015 of $0.36. However, the FFO for the 12 month period ending at the end of the first quarter is $1.04. So the estimate for 2016 would seem reasonable. This stock price testing suggests that the stock price is reasonable and below the median.

When I look at analysts' recommendations, I find them all over the place with Buy, Hold, Underperform and Sell recommendations. The only recommendation not present is a Strong Buy. Most of the recommendations are a Hold and the consensus recommendation would be a Hold. The 12 month stock price is $1.87. This implies a total return in capital gains of 3.31%.

Bill Dery talks about the recent stock movements of Penn West on Founders Daily. Matt DiLallo of Motley Fool gives a favorable impression of this stock. According to a press release on News Wire Penn West settle a class action suit that claimed their annual statements did not follow GAAP or IFRS rules. The suit claims that the defendants between 2011 and 2014 misrepresented Penn West's financial statements as following GAAP or IFRS rules. On July 2014 Penn West disclosed that certain of the company's historical financial statements must be restated.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see that report here.

The last stock I wrote about was about was Lassonde Industries Inc. (TSX-LAS.A, OTC- LSDAF)... learn more . The next stock I will write about will be Canam Group Inc. (TSX-CAM, OTC-CNMGA)... learn more on Wednesday, July 27, 2016 around 5 pm. Tomorrow on my other blog I will write about Disposable Income for the young... learn more on Tuesday, July 26, 2016 around 5 pm.

Penn West is the largest conventional oil and natural gas producing trust in North America. They operate only in Alberta. Its web site is here Penn West Petroleum Ltd.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.