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Enerplus Corp.: Can the Earnings-Induced Rally Continue?

Enerplus Corp. (TSX:ERF)(NYSE:ERF), one of the leading producers of crude oil and natural gas in North America, announced third-quarter earnings results on the morning of November 6, and its stock has responded by rising over 6% in the trading sessions since. Let’s take a closer look at the results to determine if we should buy in to or avoid this rally.

The results that have sent its shares higher

Here’s a summary of Enerplus’s third-quarter earnings results compared with its results in the same period a year ago.

Metric Q3 2015 Q3 2014
Earnings Per Share ($1.42) $0.33
Oil & Natural Gas Sales, Net of Royalties $228.3 million $378.3 million

Source: Enerplus Corp.

In the first quarter of fiscal 2015, Enerplus reported a net loss of $292.67 million, or $1.42 per share, compared to a net profit of $67.43 million, or $0.33 per share, in the same quarter a year ago, as its revenue, net of royalties, decreased 39.7% year over year to $228.3 million.

The company noted that these steep declines could be attributed to the “weak commodity price environment,” which led to its average selling price of crude oil decreasing 45.4% to $48.22 per barrel, its average selling price of natural gas liquids decreasing 71.1% to $13.51 per barrel, and its average selling price of natural gas decreasing 38.1% to $2.08 per thousand cubic feet.

Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:

  1. Total production increased 6.5% to 110,794 barrels of oil equivalent per day
  2. Production of crude oil increased 11.3% to 44,888 barrels per day
  3. Production of natural gas liquids increased 30.8% to 5,061 barrels per day
  4. Production of natural gas increased 1.7% to 365.07 million cubic feet per day
  5. Total oil and natural gas sales decreased 39.6% to $275.7 million
  6. Funds flow from operations decreased 43.2% to $120.85 million
  7. Cash flow from operating activities decreased 38.4% to $122.6 million
  8. Debt outstanding, net of cash, increased 12.4% to $1.23 billion

Also, as a result of the low commodity price environment and the negative impact it has had on Enerplus’s operations, it announced a 40% reduction to its monthly dividend to $0.03 per share. This reduction will be effective for its December dividend and is expected to save the company approximately $50 million annually.

Should you buy in to or avoid the rally?

It was an awful quarter for Enerplus, and its dividend reduction amplified the negative sentiment, so I do not think the post-earnings pop in its stock is warranted. With this being said, I do not see further upside from here and think the negatives far outweigh the positives when considering buying the stock today, especially because commodity prices remain under pressure, which will likely lead to another very disappointing performance in the fourth quarter.

With all of the information provided above in mind, I think Foolish investors should avoid Enerplus stock today and simply monitor it going forward.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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