EOG Resources a Core Holding
EOG Resources, Inc.'s (EOG) quarterly results came in better-than-expected, reflecting increased volumes and improved commodity-price realizations, partly offset by higher costs. Domestic natural gas production grew 19%, while liquids volumes rose 51% over last year.
Additionally, the company raised its quarterly dividend by 12.5% to $0.135 a share. With robust growth from most of its core areas, EOG remains on track to achieve production growth of 15% this year and approximately 14% over the following two years. We maintain our Buy recommendation on EOG shares and see the stock as a core holding in the large-cap exploration and production (E&P) space.
EOG is targeting 2008 production growth of approximately 15%. Driving this growth will be the company's U.S. operations, estimated to grow approximately 23% year-over-year all organic. The U.S. growth will mainly come from the Barnett Shale natural gas and the North Dakota Bakken crude oil plays, both very high rate of return programs, with strong supporting contributions from the Rocky Mountain, Mid-Continent and East Texas areas.
However, production in Canada, Trinidad and the United Kingdom is likely to remain essentially flat with last year. Crude oil and condensate production is expected to increase 36% year-over-year in 2008, mainly from the North Dakota Bakken play, while natural gas liquids are expected to grow 40% primarily driven by a big increase from the Barnett Shale as EOG extracts liquids from the gas stream in both Western Johnson County and the Western extension counties.
Charlotte Russe Lowered to Sell
Charlotte Russe (CHIC) reported disappointing fiscal third-quarter results, and management indicated that the problems will continue into the fourth quarter. CHIC shares may look cheap at these levels, but we expect further deterioration in its business. The recent miss and weak guidance is due to negative comp-store sales, higher markdowns, and operating expense de-leveraging.
The macro headwinds, including declining home prices and rising food and energy prices, are reducing the consumer's ability to spend on discretionary items are hurting Charlotte Russe. The company is opening 57 new stores in fiscal 2008 and another 20-30 in fiscal 2009. We think it is a mistake to open new stores while its existing stores are struggling. These factors combined with the retirement of its Chief Executive retiring will continue to pressure Charlotte Russe's profit margin.
We are reducing our EPS estimates from $1.30 to $1.18 for fiscal 2008 and from $1.40 to $1.00 for fiscal 2009. Our estimates are well below the consensus view, and we expect the consensus estimates to continue falling over the next few months.
