With half of 2012 in the record books, it's important to take a look at whether the stocks that interest you can live up to their full potential. By making sure you know about a company's future plans and possible challenges, you can make a better decision about whether it's a smart investment for your portfolio.
Today, let's take a look at ATP Oil & Gas (Nasdaq: ATPG ) . As we saw in our look at ATP earlier this month, the deep-sea exploration and production company has found some promising properties both in the Gulf of Mexico and off the coast of Israel. But will the company be able to cash in on those prospects in time to satisfy impatient bond investors? Let's take a quick look at ATP's prospects for the rest of the year and beyond.
Stats on ATP Oil & Gas
|Average Stock Price Target||$16.17|
|2012 EPS Estimate||($4.16)|
|2013 EPS Estimate||($2.46)|
|2012 Sales Growth Estimate||10.2%|
|2013 Sales Growth Estimate||30%|
|CAPS Rating (out of 5)||***|
Source: Yahoo! Finance.
Will ATP Oil & Gas stay afloat for the rest of the year?
Few people have much doubt that ATP has potentially lucrative properties in its portfolio. With an estimated 1.5 trillion-3.4 trillion cubic feet of natural gas in the Levant Basin off Israel's coast, the company has definitely diversified beyond its early focus on the Gulf of Mexico. Noble Energy (NYSE: NBL ) has had great success off the coast of Israel, with the company being part of a consortium that has finalized a 15-year deal to sell gas worth $16 billion-$23 billion to utility Israel Electric. Given the slow pace at which ATP has produced in the Gulf, the company really needs success elsewhere in order to start moving forward more rapidly.
But the biggest threat to ATP's share price is its huge overhang of debt. As Fool contributor Sean Williams noted in his recent article on ATP, the company has most of its debt maturing in mid-2015. That gives the company three years to develop enough resources to convince bond investors to refinance maturing debt; for shareholders to emerge unscathed, the refinancing has to involve a minimum of dilutive equity offerings. That's a tough proposition, especially as oil prices have started to moderate. If ATP either issues new shares or has to sell a lucrative property before it reaches its production potential, then investors will miss out on a big portion of their returns.
Perhaps the worst thing for ATP is the pace at which energy development is happening beyond the company. On land, Kodiak Oil & Gas (NYSE: KOG ) has managed to boost both production and developed reserves. Meanwhile, Cheniere Energy (NYSE: LNG ) expects to start exporting liquefied natural gas within the next few years, which could start an energy renaissance around the world, given the arbitrage opportunities that natural-gas transport affords right now.
ATP has plenty of good prospects. The problem, though, is that shareholders aren't likely to be the ones to benefit. Bad luck and poor capital planning make bondholders the more likely winners going forward.
If you like prospects for energy, let us show you another stock you should look at more closely. Read about it right here in the Motley Fool's special free report on the energy industry and its best prospects.
Click here to add ATP Oil & Gas to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.