Tag - Lgcy

Stocks are trading lower today as fearful investors brace themselves in anticipation of poor earnings reports that will begin being released this week.

At 1:40 pm ET, the Russell 2000 (NYSE:IWM) is down 14.55, or 3.19%, at 441.58, while the Dow is down 1.75% at 7,877.09 and the S&P 500 is down 2.09% at 824.93.

Small caps bucking the trend today include SumTotal Systems (Nasdaq:SUMT), up 47% after receiving a buyout offer. Legacy Reserves (Nasdaq:LGCY) is also climbing 29% today after receiving a proposal from Apollo Management to acquire all outstanding units of the company at a cash purchase price of $14 per unit.

******Time flies. Seems like earnings season just ended and yet here we are again. But first-quarter earnings kick off tomorrow with Alcoa (NYSE:AA).

Given how far the stock market has come over the last three weeks, you might think stock prices are set up for a fall as the reality of earnings dashes the enthusiasm that economic recovery is at hand.

Earnings will be bad. S&P 500 companies are expected to report that earnings are down around 35% from the year-ago quarter. And earnings were already falling then.

But don’t forget, stocks have been rallying because investors are anticipating an economic recovery. Though there have been some subtle signs that the economy is starting to improve, it hasn’t happened yet. In other words, nobody expects Q1 earnings to be good.

This earnings season is going to be all about guidance. What do companies see in the future? Will they be willing to say things look better? And more importantly, will any optimism be reflected in revenues and earnings forecasts?

That’s what investors will be focused on. I’d say it’s an “even money bet” whether stocks are higher or lower when earnings season wraps up a few weeks . . .

Small-cap stocks remained in negative territory into midday trading even as the Dow zigzagged back and forth from lower to higher ground. Energy and commodity stocks were once again the dominant upside force for equities, countered by a weak tone in financial shares following a dour report on the jobs front this morning. Some of today’s small-cap gainers are China Valves Technology Inc. (Nasdaq:CVVT), American Italian Pasta (Nasdaq:AIPC) and Legacy Reserves (Nasdaq:LGCY).

Other Market Watch highlights today included:

• Energy stocks were up some 2.7% at mid-session, while financial shares were off about 2.2%.  
• The pullback in the dollar was an obvious benefit to crude oil prices, which climbed back above $46 a barrel, up nearly $3 today.  
• The greenback was off more than 2% against the euro, sinking to the lowest point since Oct. 21.  
• Small-cap stocks remained in negative territory into midday trading even as the Dow zigzagged back and forth from lower to higher ground.

Small Cap Gainers:

• China Valves Technology Inc. is the top percentage gainer so far today, jumped 133% on all of 240 shares traded as the firm said they were setting up a board of directors. See (NYSE:CVVT).  
• American Italian Pasta reports higher 4Q profits; shares pop 28%. See (Nasdaq:AIPC).
• Citi initiates coverage on Legacy Reserves with a "buy," price target $15. Shares are up 20% to $10. See (Nasdaq:LGCY).  
• James River Coal Company up 17%, continuing rise from Tuesday when shares began to climb on an analyst's note. See (Nasdaq:JRCC).  
• Royale Energy up 17% as energy stocks are extending their rally from earlier this week. See (Nasdaq:ROYL).  

Small Cap Losers:

• Caraco Pharmaceuticals Labs, Ltd. rose 48% and has been on a two-day upside rampage without any apparent fresh news behind the run. See (NYSE:CPD).  
• Integral Systems Inc. slumped 25% as the satellite communications firm announced preliminary results. See (Nasdaq:ISYS).  
• QKL Stores Inc. tumbled 61% as the Chinese supermarket chain announced they were adding three new stores. See (Nasdaq:QKLS).  
• Hecla Mining drops 24% after announcing $21 million equity transaction. See (NYSE:HL).  

Legacy Reserves LP (Nasdaq:LGCY)
Midland, Texas
http://www.legacylp.com/

52-week low / high: $17.95 / $30.42
Shares Outstanding: 29.72 million
Market Capitalization: $620 million

With giant oil companies posting record earnings, small-cap investors may wonder which smaller companies can profit off soaring oil prices. Enter Legacy Reserves LP (Nasdaq:LGCY), an independent oil and natural gas company with soaring revenue.

During fiscal 2007, Legacy’s revenue totaled $112.2 million, up 88% from $59.8 million in 2006 and up 340% from $25.5 million in 2005. In 2007, natural gas sales rocketed 49% to $21.4 million from $14.4 million during 2006. Clearly, the Midland, Texas-based company is doing something right.

Legacy has two primary segments: buying oil-producing and natural gas properties, and developing producing properties. As of Dec. 31, Legacy owns 214 oil fields in Texas and Oklahoma. The company also operates 1,547 wells and owns an interest in 2,207 other wells. Seven fields account for about 57% of Legacy’s reserves, the company said in a regulatory filing.

The company is expanding its holdings. On March 13, Legacy announced that it entered into a deal to acquire oil and natural gas producing properties in Texas, Oklahoma and Kansas for $82 million. Legacy said it expects the acquisition to be immediately accretive. The acquisition is the largest in Legacy’s history. Productive properties have been paying off for Legacy. In 2007, the company’s average production rose 63% to 4,970 barrels of oil per day.

Legacy’s Wall Street coverage has been mostly positive. On Feb. 1, Stifel Nicolaus & Co. analysts reinitiated coverage of Legacy with a “buy” rating and a $24 price target. In a note to investors, Stifel Nicolaus said Legacy has been successfully consolidating small deals in the Permian Basin since 2006 and is now expanding into nearby regions. The investment bank also said Legacy’s experienced management team provides a competitive edge. On Jan. 10, Friedman Billings analysts reiterated their “outperform” rating on Legacy. However, Friedman reduced Legacy’s price target to $28 from $29.

Out of six Wall Street brokers that cover Legacy, the average price target is $27.67. The average rating on the stock is 1.4, with 1 being a “strong buy.” For fiscal 2008, analysts expect earnings of $1.88 per share on revenue of $178.8 million. In 2007, Legacy lost $2.13 per share on revenue of $112.2 million.

Although it’s shown volatility, Legacy shares are up more than 6% since early March, but investors should still be careful: Legacy shares are down more than 25% from a year ago.

Note: Legacy Reserves (Nasdaq:LGCY) is on the "Watch List" of Growth Report, a subscription investment newsletter from Business Financial Publishing, which also publishes SmallCapInvestor.com. As a Watch List company, Legacy displays many characteristics found in successful stock winners, and is being closely monitored for possible inclusion in the Growth Report portfolio at a later date.

Money no longer grows on trees. You have to mine it, drill for it, or plant, water and harvest it. As an independent oil and gas producer, Legacy Reserves L.P. (Nasdaq:LGCY) drills, and passes on a yield of 9% to investors.

As a master limited partnership — typically a low-risk, income-oriented investment — Legacy bases returns on cash distributions, which offer investors a relatively sound foundation for their portfolio. Although market conditions have conspired against nearly all investments, Legacy’s yield is as soothing as a glass of Texas tea. MLPs historically have little correlation to the S&P index and can have certain tax advatanges, making them an attractive choice when the market’s dicey.

Legacy, based in Midland, Texas, has properties mainly in the Permian Basin of West Texas and southeast New Mexico. It is rolling in black gold — oil, that is. The company’s proven reserves increased 71% to 32.1 million barrels of oil at the end of 2007, from 2006. Adjusted EBITDA increased 92% to $70.2 million, and revenues were $112.2 million, up from $59.8 million. Oil sales accounted for $83.3 million.

Legacy’s production in 2007 averaged 4,970 barrels of oil equivalent per day, up 63% from the previous year. In the fourth quarter, net oil, natural gas liquids, and natural gas production increased to 6,453 barrels of oil equivalent per day, up 24% from the third quarter. Legacy said the fourth quarter increase in production came from acquisitions, new wells drilled and completed, and from other projects finished in the third and fourth quarters of 2007.

And Legacy has added to its growing production, announcing its biggest acquisition ever on March 13. The company bought certain oil- and natural gas-producing properties located mainly in the Permian Basin at a cost of $82 million. The properties have estimated proven reserves of about 4.1 million barrels of oil equivalent. They are long-lived at 14 years, and 80% have already been developed. The acquisition will be immediately accretive to distributable cash flow and payable in the second quarter.