Shares of independent energy company Denbury, Inc. (DEN) (GB:0I8A) closed higher yesterday after reports of a possible sale. Shares are now up 45.4% over the past month.
According to Bloomberg, the Texas-based company is looking at options that also include a possible sale. While talks are ongoing, a transaction may or may not come to fruition.
The development comes amid a spate of transactions in the energy sector, as energy prices stay buoyant due to global geopolitical tensions. Warren Buffett’s Berkshire Hathaway (BRK.A) (GB:0HN0) continues to pick up Occidental Petroleum (OXY) (GB:0KAK) shares. Devon Energy (DVN) (GB:0I8W) has agreed to acquire Validus for $1.8 billion, and Centennial Resource (CDEV) (GB:0HVD) is teaming up with Colgate Energy in a $2.5 billion transaction.
Denbury, on its part, had emerged from bankruptcy in September 2020 in a move that shifted control of the company to its creditors and wiped off $2.1 billion of its debt. At the time, lower oil prices and weak demand had led to multiple restructurings in the energy sector.
Earlier this month, the company reported a 60% year-over-year jump in its top line for the second quarter. Revenue of $482.16 million comfortably beat estimates by $73.6 million. EPS of $1.69 was in-line with expectations.
Importantly, Denbury exited Q2 with zero debt and its Board increased the share buyback program by $100 million, to $350 million. Additionally, the company’s enhanced oil recovery operations (EOR) injected 1.2 million metric tons of industrial-sourced CO2 during Q2. This is a 27% increase sequentially.
While elevated 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 about 18,000 acres. Additionally, 28% of its oil was carbon-negative or blue oil due to the injection of industrial-sourced CO2 in EOR. Impressively, Denbury injects more than four million tons of captured industrial-sourced CO2 per year.
Is Denbury a Good Stock to Buy?
Stifel Nicolaus analyst Michael Scialla has reiterated a Buy rating on the stock while increasing the price target to $144 from $132. This implies a massive 62.31% potential upside.
Overall, the Street has a Moderate Buy consensus rating on the stock alongside an average price target of $97.20.
Hedge funds though, are at the other end of the spectrum and have decreased holdings in Denbury by 742,200 shares in the last quarter. This implies a very negative hedge fund confidence signal in the stock.
Closing Thoughts
Despite the past month’s price rise, short interest in Denbury also remains high at nearly 11.4%. Which way the tide turns will hinge on the next developments at the company.
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