Shares of independent energy company Denbury, Inc. (LAIR) (GB: 0I8A) closed higher yesterday after reports of a possible sell-off. Shares are now up 45.4% over the past month.
According Bloomberg, the Texas-based company is exploring options that also include a possible sale. While the talks are ongoing, a deal may or may not materialize.
The development comes amid a series of deals in the energy sector, as energy prices remain supported due to global geopolitical tensions. Warren Buffett’s Berkshire Hathaway (BRK.A) (GB: 0HN0) continues to acquire Occidental Petroleum (OXY) (GB:0KAK) shares. Devon Energy (NDV) (GB: 0I8W) agreed to acquire Validus for $1.8 billion, and Centennial Resource (CDEV) (GB: 0 HVD) partners with Colgate Energy in $2.5 billion deal.
Denbury, for its part, emerged from bankruptcy in September 2020 in a move that transferred control of the company to its creditors and erased $2.1 billion of its debt. At the time, falling oil prices and weak demand led to multiple restructurings in the energy sector.
Earlier this month, the company announced a 60% year-over-year increase in revenue in the second quarter. Revenue of $482.16 million far exceeded estimates of $73.6 million. EPS of $1.69 was in line with expectations.
Importantly, Denbury exited the second quarter debt-free and its board increased the $100 million share buyback program to $350 million. Additionally, the company’s enhanced oil recovery (EOR) operations injected 1.2 million metric tons of industrial CO2 during the second quarter. This is a sequential increase of 27%.
While high oil prices mean robust cash flow for the company, it also remains a key name in carbon capture. It has a planned CO2 storage site in Louisiana that covers approximately 18,000 acres. Additionally, 28% of its oil was carbon negative or blue oil due to the injection of industrial CO2 into the EOR. Impressively, Denbury injects over four million tonnes of captured industrial CO2 per year.
Is Denbury a good stock to buy?
Stifel Nicolaus analyst Michael Scialla reiterated a buy rating on the stock while raising the price target to $144 from $132. This implies a huge upside potential of 62.31%.
Overall, the Street has a Moderate Buy consensus rating on the stock alongside an average price target of $97.20.
Hedge funds are at the other end of the spectrum, however, and have reduced their holdings in Denbury by 742,200 shares in the last quarter. This implies a very negative hedge fund confidence signal in the stock.
Despite last month’s price rally, short-term interest in Denbury also remains high at nearly 11.4%. Which way the tide turns will depend on the company’s next developments.
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