Recent energy industry laggard EXCO Resources (NYSE: XCO) missed analysts' estimates for the quarter. Their lackluster earnings report certainly won't give investors much confidence moving forward.

By the numbers
Oil & Gas revenues for EXCO dropped 27% year over year. This could be overlooked, because gas prices for the quarter have also dropped 28% since this time last year, but overall production for the company was also down 7% and 6% sequentially and year over year, respectively. Non-GAAP adjusted earnings per share of $0.13, which doesn't count one-time writedowns, still missed analyst expectations of $0.15. Including the $318 million pre-tax non-cash ceiling test writedown of assets, total diluted earnings per share were $1.62.

During the company's conference call, EXCO CEO Douglas Miller commented on the prospects of several acquisitions "in the pipeline." None of these deals have been executed, but they will more than likely be smaller buys. Recently, the company has been very prudent with its acquisitions, and has only been buying with cash on hand. In order to bring costs down, it has drastically reduced its rig count from 28 this time last year, to seven, today. While some investors might applaud the effort, this could possibly hamper the company's ability to ramp up production if demand were to increase.

What a Fool believes
EXCO hasn't found its footing following the financial collapse. The past four quarters' revenue represents less than 40% of its top line for FY 2008. The company has made great efforts to cut costs, and it has kept free cash flow positive for the year. It's still hard to look past the four straight quarters of net losses, though.

Companies that have lots of capital tied up in assets will write down those assets from time to time. Investors can forgive a quarter or two here and there when a net loss appears on the balance sheet to adjust the value of these assets. With EXCO, though, these writedown losses appear to be a bit more habitual, lately. Investors may start to wonder if the company overvalued some of its assets.


Return on Assets

5 yr expected EPS growth


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EXCO Resources



N/A (no earnings)


Enerplus Resources Fund (NYSE:ERF)



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Pengrowth Energy Trust (NYSE: PGH)





Sandride Energy (NYSE: SD)





Energy Transfer Partners (NYSE: ETP)





Source, Yahoo! Finance

Some investors might consider the company a value play, based on the share price and its dividend, but it  hasn't shown enough life as of late to justify an investment. Furthermore, a 2% dividend is the average for the entire S&P 500. Two percent is not as attractive when you consider some of the other monster dividend payers in the energy industry. Putting it together, you should stay away from EXCO.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.