Shares in Clayton Williams Energy (CWEI) were on the move Tuesday, climbing over 10 percent on triple the average volume. The company delivered its guidance for 2014 and impressed market watchers and helped spike shares, continuing a strong 12-month run that has the stock nearly doubling in value.
2014 Guidance Drives CWEI Through Double Top?
CW Energy’s management predicted oil production in the coming year to fall between 16,433 and 17,367 barrels per day. If accurate, even the low end of this range would be a marked increase over 2013’s 14,399 barrels a day. This growth in production is going to be driven by a nearly $380 million increase in capital spending with a focus on the company’s properties in the Delaware Basin.
The company also may have broken past an important technical barrier on this news. Shares cleared $87 on Tuesday and held a price between $84 and $85 for much of the afternoon, potentially breaking past a double top that had formed over the last four months. Shares peaked at $83.63 on Oct. 29 before retreating to closer to $72 a share, then climbed to $83.86 on Dec. 23 before another pullback.
While it’s too early to be sure how it will go, if traders believe the breakthrough to be real, that could mean even-stronger gains will be coming in the next few weeks. The company is clearly on a roll, though, with shares more than doubling over the last year.
CWEI DuPont Analysis: Concerning Factors, but Positive Trends
Clayton Williams Energy’s appearance on Equities.com’s Small-Cap Stars is rooted in its strong ratio of price to book value and low rate of depreciation. However, if you look at a DuPont Analysis, which is contained in the Equities.com Equities Valuation Analysis (EVA) Reports, some concerning factors can arise.
Clayton Williams is well behind industry average in terms of its return on equity (ROE), sporting a ratio of just 0.2731 to the average rate of 2.5271. And the reasons are clear: Clayton Williams is heavily leveraged, carrying a lot more debt than its similarly-sized competitors. It’s also lagging well behind industry average in terms of its asset turnover, with the ratio of sales to assets behind its competitors.
However, taking a broader look, and examining data from 2011 and 2012, a brighter picture emerges.
Firstly, the company’s net margin is significantly better than industry average, a key factor in predicting success. Moreover, a look back at 2011 and 2012 show promising trends. Asset turnover and leverage both largely hold steady, decreasing only marginally. In particular, this shows that Clayton Williams doesn’t appear to be dramatically increasing its ratio of debt to assets.
More importantly, the company’s ROE is rising steadily, year over year, and this is driven by steadily improving net margins. Should these trends continue into the future, Clayton Williams could continue to have real opportunity to grow.