Prem Watsa Keeps Buying Up SandRidge

Chesapeake is the closest peer for SandRidge. It trades at 12 times forward earnings estimates, as billionaire Carl Icahn’s involvement in the stock served as a signal that the company would be able to raise sufficient cash and stabilize its financial position. Read our recent analysis of Chesapeake and check out Icahn’s favorite stocks. We can also compare the company to Devon Energy Corporation (NYSE:DVN), Apache Corporation (NYSE:APA), and EOG Resources, Inc. (NYSE:EOG), though these peers tend to have considerable production of oil as well as natural gas. There is a wide range of forward P/E multiples here, with Apache as low as 8 times consensus earnings for 2013 while EOG carries a forward P/E of 19. However, these valuations generally reflect current business conditions: in its most recent quarter, Apache’s net income was down 82% from the same period in the previous year. EOG also had lower income, but sales were up strongly and analyst estimates for the next several years actually imply a five-year PEG ratio of 1. Devon is about in the middle of these two peers at 12 times forward earnings estimates, but that assumes a much better performance in 2013 as the trailing P/E is a considerably higher 32. None of these three companies really look like good buys, as they are dependent on doing much better this year than they have this year.

Activism at SandRidge, including a possible sale of the company, could certainly serve as a catalyst. However, we don’t like the forecast of net losses for next year- especially since analysts seem to be optimistic about the industry in general, judging by the high earnings estimates and Chesapeake and other peers. This doesn’t seem like a good time to buy SandRidge.

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