Is St. Mary Land & Exploration Fairly Valued?

St. Mary Land & Exploration (SM), a Denver-based oil and natural gas exploration company, looks like a buy to many investors even though some analysts have a hold on the stock after its 21.87% gain since the first of the year.

It is ranked 79th on Investor's Business Daily's Top 100 list this week, and its accumulation/distribution ranking by IBD is a near perfect A-, which means the stock has been experiencing "heavy buying," according to the paper. The stock closed Wednesday at $47. Yahoo.com's summary page for SM is here, and Google's page is here.

After St. Mary released its first quarter earnings report, its top executives discussed the results and their outlook for SM and its industry with securities analysts. A transcript of their conference call is here. The company reported its adjusted net income in the first quarter rose 61.8% to $73.6 million on a 63.9% rise in revenues to $362.1 million. Diluted earnings per share after adjustments for non-recurring items rose 62% to $1.15 per share, while the average number of shares outstanding fell 1.3% to 64.1 million shares from 64.9 million a year ago.

In the first quarter, SM's operating margin improved 26% and its income from operations jumped 139.9%. SM's average realized sales price of oil, net of hedging, rose 45% to $76.23 per barrel from a year earlier while its average on gas per million cubic feet rose 8% to $8.69, according to its first quarter report. Its oil production fell 4% from a year earlier while its gas production rose 19%.

SM's key statistics include a relatively cheap PEG ratio (EPS/5-year projected growth rate) of 1.17, a trailing 12 months price earnings ratio of 15.4 and a forward PE for the fiscal year ending Dec. 31, 09 of 11.7. The stock is selling for 2.8 times sales and 3.1 times book.

As a highly capital intensive business, SM has a moderately low return on assets of 10.2% and a decent return on equity of 23.6%. Insiders hold 12.5% of the stock, which shows management has strong financial incentives to perform. Institutions hold only 5.8% of the shares outstanding. SM's forward annual dividend yield is 0.2%.

Even though SM is technically strong, it has had a strong run and most independent analysts are ranking it a neutral or hold, while brokerage firms' analysts surveyed by Jaywalk call it a weak buy. Morningstar.com figures the stock is above its estimated fair value of $41 and two out of a possible five stars. IBD gives SM its highest possible composite rating of 99, which means that the company's stock market momentum and fundamentals put it ahead of 99% of all publicly-traded stocks in the U.S. SM's earnings per share [EPS] growth rank is a 95 and its relative strength in the markets is a 93. Its industry (petroleum) rank is an A+, while its sales and profitability rank is an A. It can't get much better for a stock at IBD (investors.com).

SM's daily chart, which shows it's breaking out to the upside, is here. Its weekly chart, which shows the stock already has had a good run from early this year and has broken through critical resistance, is here. The monthly chart also is breaking out. The point and figure (PnF) chart is here.

The PnF chart also is showing a breakout and a bullish price objective of $49. This is basically confirmed by SM November 40 calls, which show speculators expect the stock to touch $49 before the options expire. The bearish November 40 puts suggest the stock could correct to about $38 while the November 35 puts suggest the stock could go as low as $36. No SM long-term options, or Leaps, are trading.

St. Mary is Colorado's strongest stock, according to its IBD ranking. It is the state's 19th largest company with 2007 revenues of $990.1 million and total assets of $2.6 billion, according to the Rocky Mountain News.

Full disclosure: I don’t own SM.