High commodity prices have pushed many energy stocks toward proper buy points despite stock market weakness. With the market concerned about inflation and a potential military crisis in Ukraine, this divergence should continue.
In focus, Callon Petroleum is showing explosive growth and could benefit even further if higher energy prices are realized. It is today's selection for IBD 50 Stocks to Watch.
Callon Petroleum is a Houston-based oil and natural gas producer. The company exclusively operates in Texas, extracting oil and natural gas from the Permian basin.
Energy Stock Shows Accelerating Profitability As Prices Soar
Callon Petroleum has been on a path of explosive growth. Analysts expect EPS for 2021 at $8.79, a vast increase from the $2.86 reported in 2020. This accelerating profitability has resulted from soaring energy prices providing significant tailwinds for the company. These tailwinds should continue, with EPS projected to increase further to $13.27 for 2022.
Record profits have allowed Callon to improve its balance sheet with the conversion of $197 million in debt to common shares last quarter. The company also finalized the acquisition of energy producer Primexx, which will allow Callon to increase operational capacity.
Strong results and accelerating profitability translate to Callon Petroleum boasting IBD's top Composite Rating of 99, while also ranking first in IBD's oil and gas exploration industry group.
Earnings Upcoming — Expect Volatility
Investors will get a picture of how Callon Petroleum is fairing when the company reports its fourth-quarter earnings on Feb. 23. Analysts expect EPS of $2.72 with sales of $553 million.
Past results have caused volatile stock moves, and Callon's year-end results will likely be no exception. Currently, the options market is pricing an 11% move around Callon's earnings event.
In addition to Callon's earnings, investors can expect higher stock volatility due to the political tensions around Ukraine and inflationary risks. Because energy prices are poised to increase if these risks materialize, allocations to the energy sector may help diversify other positions.
Callon Petroleum is forming a cup base with a 66.55 buy point, per MarketSmith pattern recognition. Shares are showing significant strength and positive momentum compared to the overall market with a Relative Strength Rating of 98.
Due to heightened risk from company earnings, investors should wait until results are out before considering a purchase of shares. If results are strong, Callum could continue to be a big energy stock and perhaps top its buy point.
