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List of Articles Stocks and Investing Stocks I Own Stock Advice Weight Loss and Fitness Sports Donate Back to Home	A Financial Analysis of Energen Introduction Energen (EGN) is a $4.56 billion company in the natural gas utility industry. Market capitalization competitors in this industry include MDU Resources, National Fuel Gas Company, and Southern Union Company. The natural gas industry is up 4.70% over the past year compared to the S&P 500 which is down 6.80% during the same period. Over the past month, the industry has been down 1.20%, while the S&P 500 has been down 7.80%. After a strong sell-off earlier this month, there is a strong potential for natural gas companies to grow. Evidence comes from a potentially recession-adverse industry and the increase in commodity prices. Energen's growth and valuation illustrate the potential for a strong earnings report next quarter. Business This section describes what Energen produces. According to Reuters, Energen “is a diversified energy holding company engaged primarily in the acquisition, development, exploration and production of oil, natural gas and natural gas liquids in the continental United States and in the purchase, distribution, and sale of natural gas.” While the company only focuses its operations in the United States, the company is extremely successful with its business model. What really drives profit can be attributed to higher commodity prices. Because of a lingering U.S. dollar, natural gas prices have risen from $5.50 in September 2007 to $8.08 in January 2008—a 47% increase. Despite the problems in the American economy, there is still is strong arguments for defensive companies like Energen to help hedge investor’s portfolios against riskier options. More specific to the company’s business, Energen operates under two segments: oil and gas and natural gas distribution. Beginning with oil and gas, Energen tries to increase its production and oil reserves through acquiring certain commodity properties. Most of these reserves were found in the Southern U.S. with 64% of reserves dedicated to natural gas and 26% of reserves dedicated to oil. The company is continuing to drill for further opportunities which may benefit the company in the future, by increasing sales and profit. Energen’s next segment is natural gas distribution. Primarily though the company’s Alabama distribution utility, Alagasco, Energen sells its resources to residential, commercial, and industrial consumers. Connected to two interstate pipelines, Southern Natural Gas Company and Transco, Alagasco is able to be a profitable business for Energen. Therefore, both the company’s two main segments have significance influence in making Energen an attractive investment for investors. Growth Energen has a strong growth history. In the past fiscal year, the company reported, according to Reuters, a revenue figure near $1.39 billion. This number is 8.61% higher than what the company produced last fiscal year. Compared to the industry average of 3.51% and competitor averages of 4.94% (MDU Resources) and negative 8.93% (National Fuel Gas), Energen is increasing its sales very well. Moreover, Energen’s earnings follow a similar pattern. Over the past fiscal year, Energen saw its earnings increase by 41.18% almost double the industry average of 28.28%. In addition, Energen’s figure also beat out market-cap competitors. MDU Resources only reported a 4.97% increase in earnings (a number below the company’s five year average). And National Fuel Gas reported a 10.29% increase in earnings, below the industry average as well. Therefore, Energen is growing well not only in absolute terms, but in relative terms as well. To elaborate on this assessment, an investor can look to the company’s margins. According to Reuters, in the past fiscal year, Energen reported gross, operating, and net profit margins of 54.73%, 37.45%, and 22.19%, respectively. These numbers were significantly higher than the industry’s averages of 35.73%, 15.60%, and 8.63%. Market-cap competitors also failed to beat Energen’s strong cost-efficient strategy. MDU Resources only reported respective margins of 23.62%, 12.98%, and 7.66%. Southern Union, a company who reported outstanding sales and earnings growth rates, failed to show consistency with its recent margins. The company’s respective 24.91%, 16.59%, and 11.30% were not only worse than Energen’s but worse than the industry’s numbers as well. However, what is most impressive with Energen’s figures is the company’s five year averages. Energen’s five year operating and net profit margin averages are 27.96% and 15.18% respectively. The industry only reports five year averages of 14.26% and 6.88%. Therefore, there is a strong precedence of growth and margin control for this company, which strongly aligns with Energen’s up sloping share price over this duration. The last growth metric to pay attention to is ROE. Energen supports an ROE of 25.84%. This figure is once again above the industry average of 10.37% and above market competitor figures of 13.93% (MDU Resources), 13.12% (National Fuel Gas), and 14.99% (Southern Union Company). Moreover, like margins, Energen’s five year average of 19.76% is also much higher than the industry’s average of 9.47%. Therefore, Energen has a strong history of increasing its earnings per shareholder equity. The company’s ROA of 11.81% and ROI of 13.88% are also both above market values. Therefore, Energen fires on all cylinders. Its growth is outstanding, and its growth should continue in the long term, given the company’s defensive business model. Valuation With such a high ROE and growth figures, investors may figure that the company’s valuation may be overvalued. However, this assumption is not the case. According to Reuters, the industry P/E average is 22.55 and the respective price to sales average is 1.98. Energen sees a forward P/E ratio of 15.44 and a forward price to sales ratio of 3.28—mostly undervalued numbers compared to the industry. In addition, Energen’s numbers are also below industry competitors. MDU Resources’s respective figures are 15.46 and 1.15, while National Gas Company supports a 16.91 P/E and 1.67 price to sales combination. More specific to growth, Energen’s PEG ratio of 1.34 is relatively low compared to these industry rivals as well. MDU Resources (1.88), Southern Union (2.20), and National Gas (3.18) all have higher ratios compared to Energen. Therefore, using the aforementioned information, Energen is undervalued compared to the expected growth it will see in the future, making this stock an attractive buy for investors. Efficiency Energen is efficient. The company's receivable turnover of 8.21 is respectable compared to the industry’s average of 10.01. Energen manages to collect cash from consumers every 45 days. Inventory turnover at 7.11 also follows a similar pattern compared to the industry’s 19.27 number. Moreover, asset turnover is also strong at 0.53. In terms of liquidation, Energen’s current ratio is 0.74—a respectable number related to debt and equity purchases. This statistic coincides with the company’s low debt to equity ratio of 0.48. Some investors may question high debt financing, but the growth rates are excellent. And most of that growth comes from using riskier lines of capital. Moreover, Energen’s dividend yield of 0.72% is strong in the natural gas industry. In addition, institutions own 70.79% of all Energen shares. Since the institutional investors have a larger gross amount of capital to lose compared to the retail investor, a high institutional percentage illustrates confidence in the stock's ability. Technical Analysis Energen performed well in 2007. The company’s share price has increased 38.82% year-to-year. This type of growth is amazing for a recessionary-type economy. There seems to be some support at the 60 dollar share price range dating back to late-2007. The last time Energen reached this amount the company rebounded and appreciated 9%. There is a possibility a similar situation could occur in the future. More specific to the current month, Energen illustrates strong technical signals. The 50 day SMA and 50 day EMA have converged after the $63 mark, signaling a support level. The convergence will possibly lead to a strong outbreak in the coming months and weeks. The company is a little undervalued compared to the RSI index at 42.98, but it is better to be an advocate of fundamental valuations before technical valuations. Therefore, while now isn't the most ideal time to purchase shares of Energen according to technical analysis, purchasing shares will still produce strong long terms gains. Conclusion Energen is a great acquisition for any portfolio. The company's business model and fundamental analysis are both strong. It is very rare to find a company that has both strong valuation and growth, so it is wise to take advantage of these situations as they arise. -Dennis Biray January 18th, 2008 ©2008 BirayNetworks. All Rights Reserved

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A Financial Analysis of Energen

Introduction

Energen (EGN) is a $4.56 billion company in the natural gas utility industry. Market capitalization competitors in this industry include MDU Resources, National Fuel Gas Company, and Southern Union Company. The natural gas industry is up 4.70% over the past year compared to the S&P 500 which is down 6.80% during the same period. Over the past month, the industry has been down 1.20%, while the S&P 500 has been down 7.80%. After a strong sell-off earlier this month, there is a strong potential for natural gas companies to grow. Evidence comes from a potentially recession-adverse industry and the increase in commodity prices. Energen's growth and valuation illustrate the potential for a strong earnings report next quarter.

Business

This section describes what Energen produces. According to Reuters, Energen “is a diversified energy holding company engaged primarily in the acquisition, development, exploration and production of oil, natural gas and natural gas liquids in the continental United States and in the purchase, distribution, and sale of natural gas.” While the company only focuses its operations in the United States, the company is extremely successful with its business model. What really drives profit can be attributed to higher commodity prices. Because of a lingering U.S. dollar, natural gas prices have risen from $5.50 in September 2007 to $8.08 in January 2008—a 47% increase. Despite the problems in the American economy, there is still is strong arguments for defensive companies like Energen to help hedge investor’s portfolios against riskier options.

More specific to the company’s business, Energen operates under two segments: oil and gas and natural gas distribution. Beginning with oil and gas, Energen tries to increase its production and oil reserves through acquiring certain commodity properties. Most of these reserves were found in the Southern U.S. with 64% of reserves dedicated to natural gas and 26% of reserves dedicated to oil. The company is continuing to drill for further opportunities which may benefit the company in the future, by increasing sales and profit.

Energen’s next segment is natural gas distribution. Primarily though the company’s Alabama distribution utility, Alagasco, Energen sells its resources to residential, commercial, and industrial consumers. Connected to two interstate pipelines, Southern Natural Gas Company and Transco, Alagasco is able to be a profitable business for Energen. Therefore, both the company’s two main segments have significance influence in making Energen an attractive investment for investors.

Growth

Energen has a strong growth history. In the past fiscal year, the company reported, according to Reuters, a revenue figure near $1.39 billion. This number is 8.61% higher than what the company produced last fiscal year. Compared to the industry average of 3.51% and competitor averages of 4.94% (MDU Resources) and negative 8.93% (National Fuel Gas), Energen is increasing its sales very well. Moreover, Energen’s earnings follow a similar pattern. Over the past fiscal year, Energen saw its earnings increase by 41.18% almost double the industry average of 28.28%. In addition, Energen’s figure also beat out market-cap competitors. MDU Resources only reported a 4.97% increase in earnings (a number below the company’s five year average). And National Fuel Gas reported a 10.29% increase in earnings, below the industry average as well. Therefore, Energen is growing well not only in absolute terms, but in relative terms as well.

To elaborate on this assessment, an investor can look to the company’s margins. According to Reuters, in the past fiscal year, Energen reported gross, operating, and net profit margins of 54.73%, 37.45%, and 22.19%, respectively. These numbers were significantly higher than the industry’s averages of 35.73%, 15.60%, and 8.63%. Market-cap competitors also failed to beat Energen’s strong cost-efficient strategy. MDU Resources only reported respective margins of 23.62%, 12.98%, and 7.66%. Southern Union, a company who reported outstanding sales and earnings growth rates, failed to show consistency with its recent margins. The company’s respective 24.91%, 16.59%, and 11.30% were not only worse than Energen’s but worse than the industry’s numbers as well. However, what is most impressive with Energen’s figures is the company’s five year averages. Energen’s five year operating and net profit margin averages are 27.96% and 15.18% respectively. The industry only reports five year averages of 14.26% and 6.88%. Therefore, there is a strong precedence of growth and margin control for this company, which strongly aligns with Energen’s up sloping share price over this duration.

The last growth metric to pay attention to is ROE. Energen supports an ROE of 25.84%. This figure is once again above the industry average of 10.37% and above market competitor figures of 13.93% (MDU Resources), 13.12% (National Fuel Gas), and 14.99% (Southern Union Company). Moreover, like margins, Energen’s five year average of 19.76% is also much higher than the industry’s average of 9.47%. Therefore, Energen has a strong history of increasing its earnings per shareholder equity. The company’s ROA of 11.81% and ROI of 13.88% are also both above market values. Therefore, Energen fires on all cylinders. Its growth is outstanding, and its growth should continue in the long term, given the company’s defensive business model.

Valuation

With such a high ROE and growth figures, investors may figure that the company’s valuation may be overvalued. However, this assumption is not the case. According to Reuters, the industry P/E average is 22.55 and the respective price to sales average is 1.98. Energen sees a forward P/E ratio of 15.44 and a forward price to sales ratio of 3.28—mostly undervalued numbers compared to the industry. In addition, Energen’s numbers are also below industry competitors. MDU Resources’s respective figures are 15.46 and 1.15, while National Gas Company supports a 16.91 P/E and 1.67 price to sales combination. More specific to growth, Energen’s PEG ratio of 1.34 is relatively low compared to these industry rivals as well. MDU Resources (1.88), Southern Union (2.20), and National Gas (3.18) all have higher ratios compared to Energen. Therefore, using the aforementioned information, Energen is undervalued compared to the expected growth it will see in the future, making this stock an attractive buy for investors.

Efficiency

Energen is efficient. The company's receivable turnover of 8.21 is respectable compared to the industry’s average of 10.01. Energen manages to collect cash from consumers every 45 days. Inventory turnover at 7.11 also follows a similar pattern compared to the industry’s 19.27 number. Moreover, asset turnover is also strong at 0.53. In terms of liquidation, Energen’s current ratio is 0.74—a respectable number related to debt and equity purchases. This statistic coincides with the company’s low debt to equity ratio of 0.48. Some investors may question high debt financing, but the growth rates are excellent. And most of that growth comes from using riskier lines of capital. Moreover, Energen’s dividend yield of 0.72% is strong in the natural gas industry. In addition, institutions own 70.79% of all Energen shares. Since the institutional investors have a larger gross amount of capital to lose compared to the retail investor, a high institutional percentage illustrates confidence in the stock's ability.

Technical Analysis

Energen performed well in 2007. The company’s share price has increased 38.82% year-to-year. This type of growth is amazing for a recessionary-type economy. There seems to be some support at the 60 dollar share price range dating back to late-2007. The last time Energen reached this amount the company rebounded and appreciated 9%. There is a possibility a similar situation could occur in the future.

More specific to the current month, Energen illustrates strong technical signals. The 50 day SMA and 50 day EMA have converged after the $63 mark, signaling a support level. The convergence will possibly lead to a strong outbreak in the coming months and weeks. The company is a little undervalued compared to the RSI index at 42.98, but it is better to be an advocate of fundamental valuations before technical valuations. Therefore, while now isn't the most ideal time to purchase shares of Energen according to technical analysis, purchasing shares will still produce strong long terms gains.

Conclusion

Energen is a great acquisition for any portfolio. The company's business model and fundamental analysis are both strong. It is very rare to find a company that has both strong valuation and growth, so it is wise to take advantage of these situations as they arise.

-Dennis Biray
January 18th, 2008