1. Kosmos Energy Ltd. (NYSE:KOS)
Share Price: $4.48
5-Year Net Income Growth: 61.60%
5-Year Revenue Growth: 8.88%
TTM Net Income: $258.32 Million
Number of Hedge Fund Holders: 25
Kosmos Energy Ltd. (NYSE:KOS) is an independent oil and gas company that specializes in exploring and producing energy resources from deepwater locations, primarily along the Atlantic Ocean’s margins. It operates in mainly four geographical regions including Ghana, Equatorial Guinea, Mauritania/Senegal, and the U.S. Gulf of Mexico.
The oil and gas exploration company is making significant progress toward its production goals, with recent successful projects contributing to its output. The company has successfully started oil production at the Jubilee Southeast and Winterfell projects, alongside enhancement efforts in the Gulf of Mexico. By the end of the year, it anticipates contributions from the GTA project and infill drilling in Equatorial Guinea, aiming for a year-end production target of around 90,000 barrels of oil equivalent per day.
One of the key differentiating factors for Kosmos Energy Ltd. (NYSE:KOS) is its focus on quality over quantity. This approach follows a multi-year investment cycle, with capital expenditures expected to decrease as projects are completed. It expects to generate significant free cash flow once all the projects are operational. Management expects its cash flow to be between $100 million and $150 million per quarter. This cash flow will primarily be used to pay down debt, enhancing financial stability.
During the second quarter of 2024, the company reported production of 62,000 barrels of oil equivalent per day, marking a 7% increase year-on-year. This was, however, towards the lower end of its guidance due to reduced output from the Jubilee field and delays in the Winterfell project startup.
However, on the bright side, the cost of production was well within its guidance, and operating expenses were below expectations indicating operational efficiency. Kosmos Energy Ltd. (NYSE:KOS) now expects to produce around 67,000 to 71,000 barrels per day, a slight adjustment due to the challenges from Jubilee and Winterfell locations.
These challenges are short-term headwinds as the company has established fundamentals demonstrated by its 5-year performance. Over the past 5 years, its top line has grown by 9% and the bottom line has improved by more than 61%, thereby making it one of the high-growth penny stocks that are profitable in 2024.
Patient Capital Management made the following comment about Kosmos Energy Ltd. (NYSE:KOS) in its Q3 2023 investor letter:
“We added to our energy exposure in the quarter, buying shares in Kosmos Energy Ltd. (NYSE:KOS), an exploration and production services company with assets in Africa. The company is differentiated in the exploration & production (E&P) space because of its growth profile (+30% YoY in 2024), long reserve life (>20yrs, nearly double the sector average) and focus on liquified natural gas (LNG). We see this as a classic case of time arbitrage where the market is myopically focused on the near-term risk the company will miss production targets for new assets while ignoring the long-term intrinsic value. After years of investing in project development, it is close to moving into the harvesting phase with production expected to grow 30% YoY in 2024. At the same time, capital expenditures should fall 30% YoY leading to very strong FCF yield of >25%, which will initially go towards debt paydown. At these levels, the company will generate more than its current market cap in FCF over the next 5 years at $90 Brent prices. With the combination of gas-heavy reserves and inflecting cash flow generation, we think Kosmos is significantly undervalued and a potential acquisition target.”
While we acknowledge the potential of Kosmos Energy Ltd. (NYSE:KOS) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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