Peers for Halcon Resources Corp (NYSE:HK) include Anadarko Petroleum Corporation (NYSE:APC), Continental Resources, Inc. (NYSE:CLR), Magnum Hunter Resources Corp (NYSE:MHR) and Bakken-focused Kodiak Oil & Gas Corp (USA) (NYSE:KOG). Kodiak is the only one of these which is as cheap on a forward basis- it is valued at 8 times consensus earnings for 2014- although that company is characterized not only by high expectations but also by decent historical results which place its trailing P/E multiple in the teens. Anadarko and Continental carry trailing earnings multiples in the 18-20 range, reflecting that the market expects those companies to grow their bottom lines through higher production. The “best case scenario” appears to be weaker there, though these companies are significantly larger than Kodiak or Halcon Resources Corp (NYSE:HK) by market cap and the sell-side is actually quite optimistic about Continental’s next several years. Magnum Hunter is generally expected to lose money in the current fiscal year, and given these other options we would avoid the stock; we’d note that that company is a very popular short, with short sellers accounting for over 30% of the float.
Analyst expectations suggest that Halcon has some promise, but we think we’d rather stick to companies which are currently profitable yet which carry forward earnings estimates that put them somewhat close to Halcon Resources Corp (NYSE:HK)’s pricing on that basis. As such Continental and certainly Kodiak appear more worthy of further research from a value perspective.
Disclosure: I own no shares of any stocks mentioned in this article.