AREX

[cviller]

Dan,
Do you follow AREX closely enough to have an opinion on how good their third quarter results, to be reported tomorrow, will be? Thanks.

[dan_s]

AREX is one of our Small-Cap Growth Portfolio companies. You can find my forecast model for it under the Watch List Tab.

Adjusted EPS s/b around 7 cents. GAAP earnings will be lower due to mark-to-market adjustment on hedges. My focus (and yours should be too) is on their production volumes and cash flow per share.

[dan_s]

AREX getting hammered this morning. Production volumes for Q3 were slightly lower than what I had in my forecast model, but adjusted EPS of 7 cents were what I expected.

My guess is that the market is over-reacting to the change in CFO's.

Working on the forecast model now and will post it soon.

[dan_s]

Approach Resources (AREX): An updated Net Income & Cash Flow Forecast model has been posted under the Watch List Tab.

I have lowered my Fair Value Estimate $3/share to $30/share. Compares to First Call's Price Target of $30.88/share.

Production dipped a bit from Q2 to Q3, which is probably the reason for the sell-off today. However, management is holding to their guidance of 9,315 boepd for 2013, so Q4 production needs to exceed 11,000 boepd to reach that. They have a lot of high rate Wolfcamp wells being completed in Q4.

AREX deserves a high multiple because they have a large acreage position in the Permian Basin. I think AREX is a prime Takeover Target.