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Stock Analyst Update

Week in Stocks: Sticking with a Cheap Natural-Gas Pick

Plus, Comverse's accounting woes deepen, Expedia meets expectations, and more.

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Given what Morningstar analyst Justin Perucki has heard from other players in the natural-gas industry over the past few weeks, he didn't have high expectations for Compton Petroleum's (CMZ) third-quarter results. High labor, equipment, and supply costs have waylaid Canadian producers, specifically those in western Canada with projects in the oil sands going full-tilt. That trend, coupled with weaker natural-gas prices, has crimped profits. In response, some firms have curtailed their natural-gas drilling programs in the region and redeployed capital elsewhere. However, Compton doesn't enjoy this luxury given its highly concentrated portfolio, explaining why it has borne the full brunt of the profit crunch. Nevertheless, Perucki sees a silver lining: As other firms scale back activity, it'll likely place upward pressure on natural-gas prices while reduced demand for services should deflate costs. In short, Perucki thinks Compton's long-run fundamentals remain intact and, thus, is sticking with his fair value estimate.
 Full Analyst Report: Compton Petroleum

Comverse Technology's Accounting Woes Deepen
Just as Comverse Technology (CMVT) appeared to be turning the corner and putting its stock-option accounting saga behind it, the company announced Tuesday that it had uncovered additional accounting errors relating to recognition of revenue from certain contracts and in recording certain deferred tax accounts. The company also apparently misclassified certain expenses in earlier periods. Given the additional six to 12 months that it will probably take to restate results, this revelation significantly increases the possibility that Comverse's shares could face de-listing. While this latest twist is likely to have many investors throwing in the towel, Morningstar analyst John Slacks thinks Comverse's sizable cash cushion (equivalent to nearly $9 per share) and the growth prospects for its messaging business--which is buoyed by strong carrier demand and the impending launch of its unified messaging platform--provide a measure of safety for investors who can stomach what will probably be a bumpy ride. Thus, he's maintaining his fair value estimate
 Full Analyst Note: Comverse Technology
 Full Analyst Report: Comverse Technology

Jeffrey Ptak has a position in the following securities mentioned above: CMP, NVS. Find out about Morningstar’s editorial policies.