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Here's Why You Should Invest in Magnolia (MGY) Right Now

Zacks Equity Research
Updated

Magnolia Oil & Gas Corporation MGY looks compelling at the moment. Given the company’s strong fundamentals as well as positive estimate revisions, it seems like this is the right time to add the stock to your portfolio.

Magnolia is a growing exploration and production (E&P) company engaged in the development, operation, and exploration of oil and natural gas properties located in the core of the prolific Eagle Ford Shale and Austin Chalk formations in South Texas. Notably, it currently has a Zacks Rank #1 (Strong Buy), which means the company is poised to outperform the market.

What Makes the Stock a Solid Bet?

Eagle Ford Footprint

Magnolia’s asset base includes de-risked acreages located in the core of the Eagle Ford with 14,574 net acres, helping the company to maintain steady growth in output and generate substantial free cash flow. The assets here are repeatable in nature and provide Magnolia with leading industry breakevens between $28 and $32 per barrel. This enables the company earn substantial profit from strengthening oil prices. Notably, WTI crude has been hovering around the $70 per barrel mark over the past few months.

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Notably, Magnolia recently acquired the South Texas properties of Harvest Oil & Gas Corp and increased its presence in the region. It added around 15 net adjacent locations in the company’s core Karnes County inventory. In the first six months of this year, these properties generated $25 million in operating profit.

Oilier Production

During the first half of 2018, Magnolia’s total production averaged 48,044 Boe/d, with approximately 61.6% oil. Its volume mix is expected to remain skewed toward the ‘oilier’ side in the long run. This positions it to benefit from strengthening oil prices, which has come a long way from the historical lows — below $30 per barrel — in 2016.

To capitalize on the favorable oil pricing scenario, Magnolia increased its full-year 2018 production guidance from 45.6 thousand barrels of oil equivalent per day (Mboe/d) to 50 Mboe/d (excluding the acquisition from Harvest).

Bright Earnings Prospect

The Zacks Consensus Estimate for third-quarter 2018 earnings is pegged at 43 cents, turning around from a loss of 4 cents recorded by the company in the second quarter and 2 cents in the first quarter. For the full year of 2018, the Zacks Consensus Estimate for earnings is pegged at $1.50 per share.

Strong Balance Sheet

The company has an outstanding debt load of only $400 million as of Aug 31, 2018, whereas liquidity position is strong at $550 million. It provides Magnolia with immense growth opportunities in the long run.

Price Performance

Houston, TX-based Magnolia has gained 47% in the past year, outperforming the 11.8% collective growth of the stocks belonging to the industry.

Other Stocks to Consider

Investors interested in the Oil and Gas sector can opt for other top-ranked stocks like Petroleo Brasileiro S.A. or Petrobras PBR, TC PipeLines, LP TCP and RGC Resources Inc. RGCO, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rio de Janeiro, Brazil-based Petrobras is an integrated energy company. The company’s top line for 2018 is likely to improve 7.5% year over year. In the last four reported quarters, it delivered an average positive earnings surprise of 10.4%.

Houston, TX-based TC PipeLines is a midstream energy firm. Its bottom-line for 2018 is likely to improve 20.6% year over year. In the last four reported quarters, the partnership delivered an average positive earnings surprise of 3.7%.

Roanoke, VA-based RGC Resources’ full-year earnings are expected to grow 5.8%. In the last reported quarter, the company delivered an earnings surprise of 40%.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>


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TC PipeLines, LP (TCP) : Free Stock Analysis Report
 
Petroleo Brasileiro S.A.- Petrobras (PBR) : Free Stock Analysis Report
 
RGC Resources Inc. (RGCO) : Free Stock Analysis Report
 
Magnolia Oil & Gas Corp (MGY) : Free Stock Analysis Report
 
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Zacks Investment Research