Abraxas Petroleum Looks Weak

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The past 12 months have been a torrid time for San Antonio-based Abraxas Petroleum (NAS: AXAS) , capped by another disappointing quarterly report earlier this month. Is there any chance for revival, or will it continue its downward slide?

Poor results
Trailing-12-month revenues were their lowest since 2007. Core production fell 18% in the first half of 2011 compared to the corresponding period in 2010. Even with its equity interest in Blue Eagle production, production saw a 7% drop.

However, what caught my attention the most was a drop in core operational earnings. Earnings before interests, taxes, depreciation, and amortization dropped by a huge 59% over the past 12 months. This is a matter of concern.

Poor strategy
With $60 million allocated for capital expenditures in 2011, and about $25.6 million used up so far, there doesn't seem to be significant progress. And for a capital budget of this amount, Abraxas seems to be all over the place. From unconventional plays like the Bakken/Three Forks, Niobrara, and Eagle Ford, to the conventional ones like the Permian Basin and onshore Gulf Coast, the company seems spread thin.

Abraxas' debt-to-equity of 205% is another red flag for Foolish investors. While interest coverage is currently 1.3 times, there isn't much certainty about its future cash flows. Operational cash flows have been fluctuating in the past five years with relatively flat growth.

How is the stock valued?
Here's how Abraxas stacks up when compared to peers:

Company

TEV/EBITDA

(TTM)

P/B

Forward P/E

(1 year)

Abraxas Petroleum27.26.111.6

Warren Resources

(NAS: WRES)

7.41.510.8

GMX Resources

(NYS: GMXR)

8.10.837.9

Callon Petroleum

(NYS: CPE) .

4.01.99.3

Panhandle Oil & Gas

(NYS: PHX)

8.43.218.9

Source: Capital IQ, a Standard & Poor's company. TTM = trailing 12 months.

Abraxas looks the most expensive compared to its peers. With a huge debt and weak earnings, things don't look really bright. The stock looks over-priced against its book value. An imminent correction could even be in the offing as operational progress looks pretty slow. While Mr. Market seems to be quite optimistic about the company's future earnings, I don't see a dramatic improvement on the horizon.

Foolish bottom line
Management could do better by focusing on a single region and developing its properties. While management seems to promise a lot, a deeper analysis gives a different picture. With operational fundamentals looking weak, Foolish investors would do well to avoid this stock.

What do you think? Let me know in the comments section below.

At the time this article was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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