Swift Energy (SFY)

[dan_s]

SFY is one of our Small-Cap Growth Portfolio companies. I have been saying for over a year that this company is grossly undervalued by the market. That may be about to change. At least one aggressive option buyer thinks so (see note below). SFY will soon be announcing the sale of their Central Louisiana asset package. The improving natural gas market surely encouraged higher bids than expected by the company just a few months ago. SFY, based on my forecast model, should have strong Q4 results. Cash flow per share for the quarter should be over $1.80/share and over $7.00/share for the year. This stock is trading for less than 2X CFPS! If they report good results in their Eagle Ford drilling program, it should be "off to the races" for this one. - Dan

An option trade like this is very bullish. Note that this person will loose $170,000 if SFY does not go over $15/share by mid-May. People that make trades like this usually do a lot of homework. - Dan
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One trader is betting that Swift Energy will break out in coming months.

optionMONSTER's Heat Seeker system detected the purchase of 2,000 May 15 calls in one print for $0.85. This is clearly a new position, as open interest in the strike was 1,174 contracts before the trade appeared.

These long calls lock in the price where the stock can be purchased through mid-May no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if shares remain below the $15 strike price. (See our Education section)

SFY rose 1.04 percent yesterday to close at $13.63 as it tries to rise above its 50-day moving average. The oil and natural-gas company bounced sharply at the $12 level in mid-December and rallied briefly above $14, but the stock has been trading in a tight range for the last week.

Yesterday's call buying made up the bulk of SFY's option volume, which was more than 12 times its daily average for the last month. Overall calls outnumbered puts by a bullish 46-to-1 ratio.

[dan_s]

From another angle: SFY's proved reserves at 12-31-2012 had a PV10 over $2.3 Billion. My guess is that the PV10 of their proved reserves at 12-31-2013 will be AT LEAST $2.5 Billion. [Higher year-end gas prices may push PV10 over $3.0 Billion.]

From my notes on their Q3 conference call: Management said proved reserves will grow 7% to 12% in 2013.

Total Debt less Current Assets was approximately $1.5 Billion at 9/30/2013, so net asset value is approximately $1.0 Billion. Now go take a look at SFY's market cap. It is trading for half of its net asset value! AND that assumes their P2 and P3 has zero value.

This means the market doesn't believe their 3rd party reserve report or it does not know how to value an E&P company. My guess is "Door #2".

One problem is that management does not promote the company enough. I have asked them several times to come to Houston an speak to us, but they ignore my plea. I will try again after I see Q4 results.

[dan_s]

Swift Energy (SFY): An updated Net Income & Cash Flow Forecast model has been posted under the Watch List Tab.