On July 1, Viking Global Investors LP Chief Investment Officer Andreas Halvorsen (Trades, Portfolio) trimmed his position in two energy exploration and production companies: Rice Energy Inc. (RICE, Financial) and Encana Corp. (ECA, Financial), according to GuruFocus real-time picks.
Rice Energy
Halvorsen knocked off 31.55% of his stake in Rice Energy, selling 5,545,047 shares for $26.79 per share. The guru trimmed 0.66% of his portfolio with this transaction.
Pennsylvania-based Rice Energy’s financial strength and profitability both rank a poor 4 out of 10, implying modest growth and value potential. Although the company has a Piotroski F-score of 6, Rice Energy’s interest coverage and Altman Z-score imply possible bankruptcy within 48 months.
The company has a Beneish M-score of -0.96, driven by high days sales in receivables index, asset quality index, sales growth index and depreciation index values. For the first quarter, Rice reported a net loss of $35 million (about 17 cents per diluted share) despite increasing its average net production 11% from fourth-quarter 2016. Adjusted earnings came in at $244 million, approximately $280 million higher than the as-reported net earnings.
Encana
Halvorsen pared 8.24% of his Encana stake, selling 6,535,175 shares for $8.74 per share. The guru trimmed 0.25% of his portfolio with this transaction.
Like Rice Energy, Canada-based Encana also has poor financial strength. The company has an Altman Z-score of 0.74 and cash-to-debt ratio of 0.12, both suggesting moderately severe financial distress.
Although the company reported good first-quarter results, including net earnings of $431 million and operating cash flow of $106 million, Encana’s revenue and gross margin declined approximately 11.60% per year and 13.70% per year over the past five years. The company’s operating margin of -36.44% underperforms 58% of global competitors.
See also
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Disclosure: The author has no position in the stocks mentioned.
