Falling oil prices have impacted the industry as a whole and Denbury Resources (DNR, Financial) is no such exception. But the company’s prudent and proactive measures regarding this prevailing headwind have helped it big time to deal with the uncertain price movement and preserve its liquidity and profitability.
Better times ahead
The recently reported results were decent if we compare it with other companies in the league. This has encouraged it a lot and on the back of it, Denbury is expecting better performance in 2015 despite weak oil pricing. There are other strategies also which it is undertaking to be profitable. Let us have a look at some of Denbury’s prospects.
All of Denbury’s strategies are focused on generating free cash flows which can strengthen its financial position. Besides this, Denbury is mainly focusing on strengthening its long term prospects. Under its undertaken strategies, Denbury is mainly focusing on reducing its capital spending. In fact, the company has already reduced its capital spending by 50%. The reduction in the capital spending will not only boost Denbury’s margins but also help it maintain its dividend which will impress investors and boost its market share as well.
The falling prices are definitely a headwind for the company. The oil prices have dropped badly recently, and this drop in such a short time is challenging for the company to plan both its long- and short-term development projects. However, to deal with this, Denbury already has a solid hedge position which is expected to generate solid cash flows to cover expenditures and dividends in 2015.
Positives to watch
Moving on, Denbury is continually working on exploring new opportunities to secure long-term gains in its business. It is also focusing on bringing innovations in the existing operations, and it also formed innovation teams to explore opportunities to in the underlying assets. The management of the company is confident of its outperformance in future. The company seems well positioned to be profitable even after the oil price downtrend continues.
Denbury is having a flexible balance sheet which is impressive. The company definitely has a competitive advantage among its peers. In addition, there are other key points which make Denbury a better company than its peers. The most important fact is that Denbury doesn’t have any lease expiration issue like most of its peers are having. This will be an added advantage for the company as this will give strength to the company's operation even if the development slow down.
On the production side, the company is expecting good production from Jackson Dome which it recently completed. It seems to a solid progress in this regard, and Denbury is already seeing early indications that the well will be productive.
Conclusion
Now moving on to the fundamentals of the stock, with a trailing P/E of just 5.20 the stock is dirt cheap and the forward P/E of 78.42 shows robust earnings growth in the near term. In addition, a profit margin of 26.29% can be a solid attraction to the investors which can help it to grow its market share. All these signs are indicating a solid performance by the company in the near term. So as of now, Denbury Resources is definitely a good pick.
