We came across a bullish thesis on Amplify Energy Corp. (AMPY) on Substack by Idea Hive. In this article, we will summarize the bulls’ thesis on AMPY. Amplify Energy Corp. (AMPY)’s stock was trading at $6.74 as of Nov 12th. AMPY’s trailing and forward P/E were 4.35 and 5.48 respectively according to Yahoo Finance.
A drilling rig fueled by the energy and expertise of the oil & gas exploration and production company.
Amplify Energy (AMPY) continues to present a compelling investment opportunity within the energy sector, trading at undemanding multiples of approximately 4x 2024E EBITDA and 8x FCF. These multiples reflect the company’s solid cash generation from its low-decline, long-reserve-life oil and gas assets, especially as it ramps up development at its Beta oilfield. The Beta development is particularly promising, with the potential for substantial value creation as AMPY drills new wells and further expands its output. Recently, AMPY reported positive progress on this front, with the second well drilled in Q2 exceeding expectations, achieving production rates of 500 bpd, well above the company’s initial guidance. The third well drilled in Q3 also produced impressive results, with a 30-day production rate of 590 bpd, significantly higher than the initial forecast of 350 bpd. The well’s capital expenditure was in line with projections, and management expects it to pay out within 6 to 9 months, highlighting the strong economics of the Beta asset. With a new well expected to come online in mid-November, AMPY’s ability to scale the Beta development looks promising, with further updates expected in Q1 2025.
Operationally, AMPY delivered another strong quarter, maintaining steady production and ample free cash flow. However, the company’s decision to retain its Bairoil asset, after evaluating various proposals, reflects the challenges in the crude oil market and the volatility in pricing. While a divestiture would have been ideal for reducing debt and potentially initiating a large capital return, AMPY’s management has indicated that they are open to future transactions if market conditions improve. Despite this setback, AMPY remains focused on its core assets, particularly Beta, which is key to its growth.
From a valuation perspective, AMPY’s stock remains attractive. The market currently ascribes minimal value to the Beta asset, pricing it at around $66 million based on current multiples. However, given the successful drilling results and strong cash flow potential of Beta, this figure seems conservative. In fact, modeling Beta’s potential cash flow generation, including a more optimistic production scenario, suggests that the asset could generate up to $280 million in free cash flow over the next four years, potentially representing 70% of AMPY’s current enterprise value. As the market becomes more aware of Beta’s value, AMPY is likely to experience a re-rating, particularly as management updates its reserve figures by year-end. Given the continued success of Beta and the company’s overall solid performance, AMPY remains an attractive investment.
Amplify Energy Corp. (AMPY) is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 13 hedge fund portfolios held AMPY at the end of the second quarter which was 18 in the previous quarter. While we acknowledge the risk and potential of AMPY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMPY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.