Newfield E&P Output Robust
We are reiterating our Buy rating on Newfield Exploration Company (NFX) shares following its second-quarter outperformance, driven by volume gains and cost discipline. Production of 57.6 Bcfe [billion cubic feet equivalent] was above the upper-end of the company's guidance range, reflecting robust output from the Woodford Shale and Monument Butte plays. Volumes are expected to grow approximately 24% this year, aided by contributions from development projects currently underway.
We have raised our earnings estimates to reflect recent operational successes and a higher commodity-price deck. Our new 2008 and 2009 EPS estimates are $4.37 and $6.38, up from $3.33 and $3.57 before, respectively.
Our continued positive view of Newfield shares reflects the company's strong production-growth profile and attractive valuation that has become even more compelling following the stock's approximately 25% pullback in the last month. The company has successfully diversified its asset base away from the Gulf of Mexico (GoM) basin over the last few years.
An extensive inventory of mineral lease acreage, accumulated in the course of the past few years' acquisitions, leaves the company with a wealth of options for development drilling. Newfield's new exploration projects in Malaysia, China, and the Gulf of Mexico (GoM) offer significant long-term growth potential. Newfield's strong balance sheet provides it with the financial flexibility to make acquisitions.
The recent increase in the 2008 capital budget is due to the $226 million South Texas property acquisition, successful bidding at the most recent GoM lease sale, development capital for the recent Anduin West and Gladden deepwater GoM discoveries, an additional drilling rig in Woodford Shale and an additional drilling rig in the Monument Butte field.
Genomic Reliant on One Drug
Genomic Health Inc.'s (GHDX) lead product is Oncotype DX, which is used for early stage breast cancer patients to predict the likelihood of cancer recurrence. The company is also conducting studies to expand the product offering of Oncotype DX for patients with colorectal cancer. Sales of Oncotype remain robust. We maintain our Hold rating on the stock with a price target of $25.00.
On August 5, the company announced its second quarter results where total revenue increased to $27.8 million compared to $14.7 million in the second quarter of 2007. It also exceeded our estimate of $24.9 million. Net loss was $4.1 million in the second quarter of 2008, compared to $7.2 million in the second quarter of 2007. Our estimate of net loss was $6.2 million.
We are optimistic about the growth of Oncotype. Clinical studies have validated the use of Oncotype.
