Billionaire Steve Cohen’s SAC Capital Advisors has reported a position of 4.1 million shares in Energy XXI Limited (NASDAQ:EXXI), a $2.5 billion market cap oil and gas exploration and production company. This stake gives SAV ownership of 5.1% of the company’s outstanding shares, and is up from 1.1 million shares at the end of September (see more stock picks from Cohen and SAC). Energy XXI recently announced its earnings for the quarter ending 2012, the second of its fiscal year; the stock price fell about 5% on the news, and the stock is currently down about that much year to date.
We think it’s particularly interesting to see what hedge funds are doing in the small-cap space, since stocks at these valuations are more likely to be mispriced in the market due to the lack of attention from the media and other institutional investors. In fact, our list of the most popular small cap picks among hedge funds from our August newsletter produced an excess return of 18 percentage points between September and January (read more about our hedge fund strategies).
Revenues last quarter were down 6% from a year earlier; oil revenues, which are responsible for the vast majority of Energy XXI Limited’s business, fell while natural gas sales were actually up slightly. This pattern was partly due to lower oil production and considerably higher natural gas production. Total production actually increased, in terms of barrels of oil equivalent, but the shift in production mix to cheaper natural gas harmed revenues. At the same time, operating costs were increasing with the result being a 57% decline in earnings. The stock now trades at 12 times trailing earnings and 8 times analyst consensus for the fiscal year ending in June 2014.