Why Analysts Are So Bullish on Ring Energy

Analyst recommendations

Ring Energy (REI), a pure play Permian-focused E&P (exploration and production) company, is in third place among upstream companies in terms of analysts’ ratings. All the analysts covering the stock rate it a “buy” as of September 4. B. Riley last initiated coverage on REI with a “buy” rating. That’s the only rating update REI has seen so far in 2018.

REI is currently trading below the low range ($14) of analysts’ target price. Its average target price of $18.70 offers a 65% upside from its current price.

Why Analysts Are So Bullish on Ring Energy

Strong earnings growth potential

Ring Energy has seen strong earnings growth in the recent quarter. It posted EPS of $0.18 in the first six months of 2018 compared to $0.06 in the same period last year. For 2018, analysts expect the company to post EPS of $0.50 compared to an EPS loss of $0.08 in 2017. Earnings growth is expected to be ~142% and ~77% in 2018 and 2019, respectively. for the same years, it’s expected to post CFFO (cash flow from operations) growth of 89% and 62%, respectively.

The company’s strong earnings growth and debt-free balance sheet could be the major reasons behind analysts’ bullishness. However, its high valuation might be a slight concern. The company is currently trading at a forward price-to-CFFO ratio of 8.5x. That’s above the industry median of 5.4x.

In the next part, we’ll look at analysts’ ratings for WPX Energy (WPX).