Wunderlich Securities Initiates Buy Rating on SandRidge Energy (SD, ARD, FST)

Wunderlich Securities is out with a research report this morning, where their analysts initiated a Buy rating on SandRidge Energy Inc.

; they have a $10.00 price target on the stock. Wunderlich analysts cited their 2011 CFPS estimate of “$1.60 multiplied by 6.2 times, which is a discount to our peer group multiple due to a high debt level.” They believe SandRidge’s potential acquisition of Arena Resources

and the previous Forest Oil

Permian acquisition, coupled with SandRidge’s core Piñon Field, should provide an arsenal to increase production/cash flows and reserves as the company can produce their assets with the best returns. This combination of assets provides SandRidge with the ability to ramp either oil or natural gas plays to grow production. Wunderlich analysts also noted, “SandRidge has nearly 16 Mmbo of oil hedged 2H10-2013 at over $85/Bbl and over 40 Bcf of natural gas hedged over $7.75/Mcf for the remainder of this year. The company also has agreements with service vendors to lock-in the cost of 75% of its drilling and completion costs at today’s low rates for the next twelve months. While the hedged prices somewhat limit the upside from higher commodity levels, we would trade this in the near-term for stable cash flows, all else being equal.” They closed by saying, “SandRidge’s financials should be shored up after the Arena acquisition and previous issued preferred and common stock, bonds, and some non-core asset sales. After the deal, the company should have approximately $57 million in cash and total debt of $2.7 billion (debt to total capitalization of 76%). Though the debt to capitalization could be considered relatively high, we are satisfied with the level given the amount of strong upcoming cash flows.”