Thursday, KeyBanc Capital initiated coverage of Continental Resources Inc. (CLR) stock with a Hold rating. The brokerage established its 2009 EPS estimate of $0.26, and its 2010 estimate of $0.77.
Analyst Mitchell Wurschmidt noted that at the current share price, CLR is trading at a substantial premium to its peers (on an EV/DCF basis, CLR is trading at 17.7x and 11.6x for 2009 and 2010, vs. its peers' average multiples of 8.1x and 7.2x, respectively). Thus, the analyst is initiating with a Hold rating purely based on valuation.
There is no question in the analyst's mind that CLR is a best-in-class E&P company with one of the largest positions in the Bakken Shale play and emerging Three Forks/Sanish play, with a very talented technical/operating team. The analyst expects further success from the company in developing its Three Forks/Sanish position, where he expects the bulk of the company's activity for the balance of the year.
Nevertheless, the analyst believes CLR's strong leasehold position in the Bakken and Three Forks/Sanish play, as well as other shale plays (including both the Arkoma and Anadarko Woodford Shale plays) is reflected in the significant premium valuation relative to peers.
The analyst said that CLR is unhedged for its oil production (about 72% of total production); thus, CLR's EPS and DCFPS are very sensitive to the movement in crude oil prices. Should crude prices increase/decrease significantly from current levels, the analyst expects a comparative move in CLR's share price.
Currently, CLR is up $1.10 or 4.21% and trading at $27.20.
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