SandRidge Energy (SD) Gets Downgrade But Is Still A Buy

Page 1 of 2

SandRidge Energy Inc. (NYSE:SD) recently saw Citigroup downgrade the stock from a buy to neutral due to declining cash flows and the flood of oil to market. SandRidge is an oil and natural gas company focused on development and production of assets in the Mid-Continent area of Oklahoma and Kansas, and in western Texas. One positive is that the estimated proven reserves are around 50/50 oil and gas, which gives the energy company a solid mix. SandRidge has the likes of billionaire investors Ken Griffin, Steven Cohen and Jim Simons owning shares of the stock. T. Boone Pickens is also one SandRidge’s top investors with 5% of his 13F invested in the energy company (check out T. Boone Pickens’ top picks).

T Boone Pickens

TPG-Axon Capital – which owns 6.5% of SandRidge – has expressed notable interest in breaking up the energy company and restructuring its board. TPG has watched SandRidge for a long time, and the firm is transitioning its strategy toward an activist role. TPG utilizes a selective activist strategy where the firm will put up a fight assuming it has the possibility to double its money. TPG sees great value in the company, assuming it restructures or pursues a sale.

TPG loves the SandRidge asset base, but the fundamental issue is that management is zigzagging too much. Without action, TPG believes that in a couple years those assets might not be useful. The majority of the stock’s recent downward pressure – down 20% year to date – is likely due to the fact that investors have a complete lack of confidence in its CEO. The other big underlying issues for SandRidge have been large overhead costs and high a cost of capital.

TPG believes that what might be best is for an organization with a lower cost of capital to initiate a takeover of the asset base. TPG described SandRidge’s 3Q earnings as essentially “pulling rabbits out of a hat” to appease shareholders, i.e. the company continues to sell assets to pay for other assets.

Based on earnings uncertainty, SandRidge trades at incalculable trailing and forward P/E ratios, but only a 1.6x P/S ratio – a 50% discount to its peer average P/S ratio. Assuming SandRidge can restructure its management and asset utilization it could easily trade at only a 25% discount (2.5x). Putting a 2.5x P/S on next year’s sales estimates shows potential upside of over 100%.

Continue reading to see how SandRidge can make you more than its competitors…

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!