Jones Energy Prices $500M Notes Issue - Analyst Blog

A subsidiary of Austin, TX-based Jones Energy Inc. JONE has priced an upsized offering of an aggregate principal amount of $500 million of senior unsecured notes, due 2022. The notes will be issued at a public offering price of 100% of par to yield 6.75% to maturity. The offering is expected to close on April 1, 2014, subject to customary closing conditions.

The energy explorer plans to use the net proceeds from the offering to pay back the entire outstanding borrowings under its existing second lien term loan facility, apart from repaying the debts under the company's senior secured revolving credit facility.

New York-listed Jones Energy is engaged in the acquisition, exploration, and development of oil and gas properties. The company's operations are concentrated primarily in the Anadarko and Arkoma basins of Texas and Oklahoma.  

With rapidly rising output, a business model focused on operational efficiencies and attractive acquisitions/growth projects, Jones Energy provides investors with an attractive option in the energy space.

However, the company's shares have witnessed a significant price decline in the past four weeks, and it has seen negative earnings estimate revisions for the current quarter and the current year. A Zacks Rank #5 (Strong Sell) further confirms weakness in Jones Energy.

A key reason for this move has been the negative trend in earnings estimate revisions. For the full year, 4 estimates have moved down in the past 30 days, compared with just one upward revision. This trend has caused the consensus estimate to trend lower, going from $1.48 a share a month ago to its current level of $1.16.

Jones Energy also has seen some pretty dismal trading lately, as the share price has dropped around 8% in the past month. So it may not be a good decision to keep this stock in the portfolio anymore, at least if one doesn't have a long-time horizon to wait.

However, investors still interested in the domestic upstream industry, may instead consider some better-ranked stocks including Range Resources Corp. RRC, Approach Resources Inc. AREX and Diamondback Energy Inc. FANG. While Range Resources holds a Zacks Rank #1 (Strong Buy), Approach Resources and Diamondback Energy both carry a Zacks Rank #2 (Buy).