MMR - Here's the Barron's excerpt referenced in my earlier post. Also mentioned is the heavy insider buying.
IT'S EASY TO SEE WHY McMoRan Exploration (MMR) gets dissed. The small New Orleans company toils in the hit-and-miss field of exploration and production. It took on that which investors fear today -- debt -- to finance deals, and high exploration costs led it recently to report its fifth consecutive quarterly loss. Shares are off 32% since July and slumping at a four-year low.
So why have insiders just bought millions in stock? Hoping to find deep gas reserves under the shallow waters in the Gulf of Mexico, McMoRan has been drilling at the Flat-rock basin (in which it holds a 19% stake), and reporting hopeful "flow rates" from wells there. Production is slated to begin at year end, and until then it's difficult -- risky, even -- to handicap the wells' potential. Meanwhile, the company's co-chairman, who is also its lead geologist, has been buying McMoran shares enthusiastically, which offers at least a vote of confidence.
That's not all. A recent round of stock sales has helped McMoRan pay down bridge loans. Brad Ruderman of Ruderman Capital likes management's track record in drilling production, and the company's "prodigious cash generation," which is projected to top $300 million next year for a free-cash-flow yield of nearly 30%.
The uncertainty produces disparity even among bullish analysts. For instance, the Street consensus is for McMoRan to earn just 38 cents a share in 2008. That suggests the shares, at 11.70, trade at a whopping 31 times earnings. But that hefty multiple falls to a mere 12 times if one accepts JPMorgan's '08 forecast of 97 cents.
"We think the street has not yet acknowledged the size of McMoRan's Flatrock discovery, nor the implications for the rest of its inventory," argues JPMorgan analyst Brian Kuzma, who has an 18 price target on the stock. He calls the pullback "an opportunity for investors willing to learn McMoRan's complicated story."
AI
