CRZO Upgraded to a BUY

[dan_s]

CANACCORD UPGRADES TO BUY FROM HOLD - Analyst John Gerdes tells salesforce $0.21 recurring Q4 EPS below his $0.30 estimate ($0.32 consensus) due to lower revenue and higher depletion, depreciation, and amortization expense. Notes while he can sympathize with concerns over lower production, the economics of biz remain intact; thus he views yesterday's ~900-bp underperformance as attractive buy point. Says co.'s transition toward higher-margin liquids development is underway, driven by the Eagle Ford and Niobrara Shales. Cuts $2.02 '11 EPS est. to $1.31 largely due to lower production. Keeps $41 tgt.

I have just updated my Net Income and Cash Flow Forecast for CRZO. 4th quarter results were a bit disappointing but cash flow was solid and the move to produce more liquids is going to pay off for us. I have adjusted my Fair Value estimate to $42.50/share. If they hit my year-end oil production target and oil stays over $100/bbl, the share price will go up.

BTW I'm now using $90/bbl for oil in all of my 2011 forecast models. CRZO got $83.81/bbl of its oil in Q4 so my guess is that in Q1 they will get close to $100/bbl. CRZO has about 40% of 2011 NG production hedged at ~$6/mcf. 20% of 2012 NG hedged at ~$6.50/mcf. None of their oil or NGLs are hedged.