Gulfport Energy Corporation (NASDAQ:GPOR) is a leading natural gas-focused E&P with 243,000 net acres in the Utica shale and 11,002 net acres in Southern Louisiana. In this article, we’ll take a closer look at the company and hedge fund-related activity around the stock in the second quarter.
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Many hedge funds are long Gulfport Energy Corporation (NASDAQ:GPOR) as a lower-risk way to play the natural gas rebound. 82% of the company’s estimated 2016 natural gas production is hedged at an attractive $3.20 per MMBtu. The company also has a strong balance sheet courtesy of a $358 million secondary offering in March, a promising resource base in the prolific Utica, and a relatively low cost of production. Gulfport will benefit substantially if natural gas prices move higher.
Although more investors are bullish on natural gas and the spot price of the commodity is higher than what it was in May, Gulfport shares haven’t rallied. Hurting Gulfport was a disappointing second quarter, in which production came in at the low-end of its previous guidance of 664-to-692 MMcfe per day. For the period, Gulfport averaged 664.7 MMcfe per day of production, a 40% increase versus the second quarter of 2015 but a 4% decrease from the first quarter of 2016. Given the company’s solid execution in previous reports, many investors were hoping for a higher number.
Lower crude prices have also hurt. Whereas WTI was $48 per barrel in mid-May, it is now trading at around $45 per barrel. 6% of Gulfport’s second quarter production was oil and 7% was natural gas liquids. Some analysts have also expressed tempered optimism in the event of a rapid rebound. If crude and natural gas prices rise, Gulfport will not be able to capture all of the benefits of the increase due to its infrastructure in the Utica not improving fast enough over the next year.
Despite the previous factors, the smart money in our database is optimistic about Gulfport. In the long-run, the necessary infrastructure in the Utica will be built, and Gulfport will realize more of the benefits of stronger natural gas and crude prices. The underlying fundamentals in the natural gas and crude industry have improved and Gulfport, as a low-cost producer with a strong balance sheet, will be around to capture much of the rise. Gulfport’s Management is also doing an exceptional job containing costs. Although its production came in at the low-end of its previous guidance, Gulfport’s EPS soundly beat estimates by $0.11, with net income per share of $0.24 for the second quarter. Analysts have a consensus price target of $35.54 per share on its stock, $7.12 above the stock’s current price.
On the next page, we’ll examine relevant hedge fund activity in the stock during the second quarter.