PEYTO EXPLORATION & DEVELOPMENT CORP. $30.95

PEYTO EXPLORATION & DEVELOPMENT CORP. $30.95 (Toronto symbol PEY; Shares outstanding: 159.2 million; Market cap: $4.9 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.3%; www.peyto.com) produces and explores for oil and natural gas in Alberta. Its average daily production of 97,028 barrels of oil equivalent is 93% gas and 7% oil. In the three months ended December 31, 2015, Peyto’s cash flow fell 15.9%, to $0.95 a share from $1.13 a year ago. It raised its production by 16.5%, but that was offset by lower oil and gas prices. Its realized oil price year over year fell 28.1%, and natural gas prices fell 20.9%. The company has cut it’s original 2016 capital spending of $600 million to $650 million down to between $500 million and $550 million. It spent $594 million in 2015. Peyto achieved a daily output of 100,000 barrels per day last year. Despite reducing its spending for 2016, it should produce between 108,000 and 113,000 barrels daily. That’s because of lower drilling costs. The stock trades at 8.5 times the company’s forecast 2016 cash flow of $3.62. That’s high, but it’s not unreasonable for a company with Peyto’s long-term growth potential. The shares yield 4.3%. Peyto Exploration & Development is a buy.

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