Carin Barth, who was appointed to the Board of Directors of Bill Barrett Corporation (NYSE:BBG) earlier this year, purchased 5,000 shares of the company on September 14th at an average price of $26.59, according to a filing with the SEC. Bill Barrett is a Colorado-based exploration and production oil and gas company operating in the Rocky Mountains, including the emerging unconventional play in the Denver-Julesburg basin. Barth also serves on the board of oil and gas refiner Western Refining, Inc. (NYSE:WNR) and has experience at energy-focused investment firm LB Capital as well.
There was a good deal of insider buying at Bill Barrett Corporation this past May and June, at average prices ranging from $15.77 to $21.54 per share; note that the stock is considerably up from these insider purchases (see a history of insider purchases at Bill Barrett). This isn’t much of a surprise: statistically, insider buying tends to be a bullish signal (read our analysis of academic research on insider trading). In theory, this is because insiders should be reluctant to invest additional money in the company they work for and prefer to diversify their investments. So when they do invest in the company, it indicates strong confidence in the stock.
Despite its gains since the round of insider buying earlier this year, Bill Barrett is actually down 40% from its price of about $45 a year ago, and down 26% for 2012. It’s easy to see why the stock plunged going by the company’s most recent quarter: revenue fell 19% and operating expenses rose, bringing net income down to $3 million compared to $33 million in the second quarter of 2011. The first quarter of the year was better than a year earlier, but Bill Barrett still showed an 8% drop in revenue and an 18% drop in net income for the first half of 2012. Production of oil and natural gas was up, but were countered by falling natural gas prices. The company continues to bet on its development program, with $460 million in additions to oil and gas properties in the first six months of the year. Given the company’s market capitalization of $1.3 billion, this is a very aggressive move.
Bill Barrett Corporation now trades at 57 times trailing earnings and 32 times forward earnings estimates as investors expect the company to rebound. A recovery to pull the company’s fundamentals even with its stock price likely depends on higher energy prices, especially natural gas, which is not a sure bet given the frenzy of drilling activity in the onshore U.S. Bill Barrett could get some gains out of flat prices if production volumes rise, but we doubt that would be enough to justify the current stock price.
Plains Exploration & Production Company (NYSE:PXP), Occidental Petroleum Corporation (NYSE:OXY), and Anadarko Petroleum Corporation (NYSE:APC) are three peer companies engaged in oil and gas exploration and production, with sizable positions in the onshore U.S. These comparable companies all trade at forward earnings multiples considerably lower than Bill Barrett’s: between 12 (for Occidental) and 17 (for Anadarko). Occidental is also priced for value on a trailing basis, with a price-to-earnings ratio of 12; however, it saw a 7% drop in revenue and 27% fall in earnings last quarter compared to the same period last year. Plains has delivered growth- it saw a 79% rise in earnings compared to the second quarter of 2011- but the market has captured much of that in its trailing P/E of 36. Anadarko is the most expensive of the three on a forward basis, but even this value is considerably lower than Bill Barrett’s forward P/E; Anadarko also leads our list of the ten energy stocks hedge funds are crazy about. We think that investors should consider these companies instead of Bill Barrett if they want natural gas exposure. For value, pick Occidental; for growth, pick Plains; to follow in the footsteps of notable investors, pick Anadarko.