UPDATE: Pritchard Capital Partners Drops PT to $7 on Magnum Hunter Resources Post Recent Capital Raises 9:40a ET May 16, 2012 (Benzinga)
Pritchard Capital Partners reduces its price target from $8 to $7 on Magnum Hunter Resources (NYSE: MHR) following a recent capital raise.
Pritchard Capital Partners says, "Following the recent capital market raises, we are lowering our 2012 EPS/CFPS to ($0.11)/$0.74 from $0.06/$1.15, driven by more shares outstanding, a slightly lower production forecast (15.0 MBoe/d vs. 15.6 MBoe.d previously), as well as lower assumed realized prices and higher G&A and interest expense, partly offset by lower LOE. Our price target goes to $7 from $8 on a lowering of NAV to ~$8.60 from ~$9.90. MHR has built meaningful positions in three of the leading unconventional resource plays in North America--the Williston Basin (WB), Eagle Ford (EF) Shale, and liquids-rich area of the West Virginia Marcellus Shale."
Good point Dale, after giving some thought about this it occurred to me that since the retail guy cannot trade the senior MHR debt because of the 144a status, then the D's are (will be?) the only game in town for Magnum income investors. It is not totally irrelevant what the senior debt trades at, but rather a variable one must consider in making a decision. If the C's get called, its a good bet the proceeds find there way into the D's. An aside related note, GMXR just "swapped" their 144a debt for equivalent retail tradable debt (non144a). These are 11% due 12/01/17. RTQ ~84 cents on the dollar, cusip # 38011maq1.
I went back and looked - this is indeed the fourth analyst downgrade in 2 weeks on the heels of the offering. There are probably more in the making.
You can sneer at analyst opinions but they've been unanimous and, if anything, overly optimistic for at least the past year. Their current price targets represent large reductions in pps from previous price action several years ago ($8+)....we have gone significantly backwards.
Question to Dale or anybody else here: What is the best-case scenario that can be put on the latest events? What did MHR give up in their Baytex property acquisition and offering, what exactly did they gain?
Y'all have heard my doom and gloom take on the downside, now amplified by others - lowered EPS, missed production targets, higher G&A and interest, lower pps, enormous increase in the float, crushing debt, etc. In exchange for this managerial armageddon, what exactly did the company gain?
Sure it allowed them to double their Capex budget but how does this translate into anything specifically beneficial to shareholders. I haven't seen a single opinion that Gary's maneuverings will bring some benefit to shareholders, aside from establishing "meaningful positions" in promising areas. Even though Pritchard's numbers look sloppy and inaccurate, an eventual 15% overshoot in production (18 mboe) has been the rule for the past year or two but hasn't been translated into any advantage.