Rex Energy (NASDAQ: REXX) is an independent energy company engaged in the acquisition, production, exploration and development of oil and gas, with properties concentrated in the Appalachian and Illinois regions. REXX is one name in the oil and gas complex that could be setting up for a big breakout. REXX has become one of our favorite small natural gas producers and a company that is vastly undervalued given their resource potential. REXX is an underdog from top to bottom, but one with lots of potential to produce strong long-term gains for investors. Holding a market cap of just over half a billion dollars, $685M to be exact, REXX is tiny compared to others in its industry.
There’s a lot to like about REXX, all of which we will outline in the various sections below.
REXX has a great position in the Marcellus, a growing position in the liquids rich Utica Shale, they hold good economics on the wet gas portion of their portfolio, and have a solid hedging program which will allow them to continue to profit throughout the year even if gas prices fall.
Management has done a successful job to ensure they have enough liquidity to continue their drilling program while shifting the program toward their liquids rich acreage. Their recent deal to sell their 28% stake in the Keystone Midstream to MarkWest Energy Partners (NYSE: MWE) netted them $120 million dollars. Adding to that they have some assets in the Rockies up for sale, all which should bring in additional cash, which will be used in their drilling program.
If there is a weakness about REXX, it’s the concern in their liquidity going forward if gas prices fall much lower. Not to worry though as management has effectively combatted this issue with their recent deals along with the upsizing of their credit facility giving them the fuel needed to keep on drilling. At their current rate they have about three years of liquidity before they’ll need to either start to cut back on their drilling program or find other sources of cash if commodity prices don’t increase. We however project gas prices to increase in the next coming year especially in the liquids Rex is drilling.
Fundamentally REXX is a strong company and after examining their financial statements we have come across some strong bullish indicators investors will like to see.
- PEG Ratio 0.96; PEG Ratios below 1 shows that the stock and company is undervalued and holds lots of upside.
- P/S Ratio 5.69; Rexx’s current P/S ratio is below the historical average, which is a good indicator of value.
- Revenues look strong and management has been profitable with 31.6% Profit Margin, 26.13% Operating Margin, Trailing P/E of 15.56, Forward P/E of 22.02 all of which bode well for future earnings.
- REXX has seen a substantial increase in shares bought by insiders. Insiders now hold over 16% of REXX’s shares with many high-level executives recently purchasing back shares. It might be nothing but historically when insiders are purchasing up large amounts of shares it means good times are ahead.
- Analysts across the board believe REXX is a strong long-term investment. 12 of the 15 analysts covering the stock have issued a ‘BUY’ or ‘STRONG BUY’ rating. See the chart below for more info:
Year-to-date REXX is down but don’t let that be a reason to avoid investing as long-term the growth opportunities outweigh any potential short-term risks. Looking at the charts for Rex Energy, you’ll notice that this stock has been steadily rising since the stock bottomed at around $9.29 a share back on June 4th. Historically, whenever a stock consistently makes higher lows, it shows that large traders are eager to jump into the stock on any dip. This is a bullish signal for investors and it often means that the stock is setting up to trend much higher, which we have seen, in recent trading sessions.
This strong action in the stock has now pushed the 50-Day moving average above the 200-Day moving average which shows the stock is on an uptrend, another strong technical signal for investors. With REXX pushing past some big resistance levels the stock has showed even more strength going forward making analysts project that this stock could easily be setting up to trade back towards its 52-week high of $15.64 per share or even higher. Technical indicators look strong for REXX and if shares pass $15.64 with strong volume it will mean this stock will have zero resistance until it gets back to above $20 a share.
REXX is currently trading at $11.62. Going forward, we believe REXX has lots of potential to vastly outperform the market as they focus more on their liquids rich portfolio going forward. While they do have liquidity issues, we wouldn’t be surprised to see them seek out a joint venture partner in the near future if not simply be acquired. Rex is not the top dog, but they have plenty of room to run. We see REXX as a strong current buy opportunity and advise investors to purchase shares all the way up to $13. We plan on holding our shares until either the companies acquired or it is valued to richly to justify. Overall we are really excited about this investment opportunity and foresee strong gains over the course of the next year expecting shares to rise above $18.50 per share in the next 12-months, a total net yield of 59%.