XTO Energy: A solid play in natural gas

Posted Dec 13th 2007 10:32AM by Joseph Lazzaro
Filed under: Other Issues, Commodities, Oil, Stocks to Buy

The market in late 2007 and early 2008 -- how shall one put it? Well, diplomatically, there are a few uncertainties to keep investors awake at night: subprime mortgage defaults, the extent of the credit crunch, the price of oil, inflation, geopolitical concerns, to name just a few.

In this climate it's best to consider a defensive play or two, and while the oil and gas sector is not defensive, strictly speaking, XTO Energy comes close to fitting the bill. That's because XTO Energy (NYSE: XTO) buys primarily demonstrated oil and gas properties. XTO owns interests in more than 18,800 wells and operates gas gathering systems in Arkansas, Kansas, Oklahoma, and Texas.

Analysts expect oil and gas production growth of 17%-20% in 2007, and 14%-17% in 2008. Analysts also like XTO's 6.9 trillion cubic feet of proved natural gas reserves. Look for natural gas to play a larger role in the United States' energy use, amid sustained high oil prices and increasing environmental awareness. The Reuters F2007/F2008 EPS consensus estimates for XTO are $4.40/$4.33.

The risks? A U.S. economic downturn would affect natural gas demand and hurt XTO's results. Analysts also have their eye on XTO's acquisition strategy for signs that it may become too assertive and result in overpaying for assets.

The First Call mean rating for XTO is Buy (27 firms), and the mean 2008 target is $72.00 (high: $81, low: $66).

Stock Analysis: XTO Energy is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from XTO's shares. Consider a stop loss of $44 if you were to purchase shares in this company.

Tags: energy, natural gas, natural gas exploration, oil, oil exploration, oil prices, XTO, XTO Energy