Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Key Energy Services, (NYSE:KEG) exploded higher in April as the stock was up more than 40% for the month. Higher oil prices helped get the rally started as the double digit rally in oil prices last month is expected to help halt the slide in oil and gas drilling activity.
Oil, however, wasn't the only fuel driving last month's big gains as Key Energy's announced first-quarter results at the end of the month, which also contributed to the gains.
So what: On the surface Key Energy Services' first-quarter results were absolutely atrocious. Revenue plunged nearly 25% over the prior year's first-quarter to $267.9 million, which missed estimates by more than $35 million. Worse yet, the company lost $0.39 per share, which was well off the consensus estimate of a loss of $0.19 per share. To make matters worse, the company, which hasn't made money since 2012, isn't expected to generate positive earnings on an annual basis until 2017.
All that being said, analysts and investors did see some positives in the report. First, a bulk of the worse than expected loss was due to special items the company took during the quarter. If we back those out the company actually beat estimates by a penny. Further, thanks to better oil prices the company sees the decline in oil and gas activity moderating with pricing starting to stabilize. Finally, the company has decided to focus its business on production enhancement in North America as it sees its customers shifting their focus toward production enhancement projects.
Now what: Key Energy Services still has a long road ahead of it. The company's balance sheet still leaves a lot to be desired as does its lack of earnings. However, it is starting to see some positives in oil and gas activity, which could lead to an improvement in its business over the course of the year. That should take a worst case scenario off the table, which is leading to the surging stock price as investors really had left this stock for dead.