Morgan Stanley Initiates Coverage On GMX Resources Inc. At Equal-Weight
April 06, 2011 7:34 AM
According to Morgan Stanley, GMX Resources (NASDAQ: GMXR) is a transformation story and it offers direct exposure to potentially significant liquids growth as the company recently completed a recapitalization and acquired 40.6k acres in the Niobrara and 26k acres in the Bakken. Morgan Stanley sees significant asset value at GMXR, but potential capital needs and execution risk balance risk-reward.
The next catalysts should be well results from GMXR and peers that derisk the acreage. Considering current valuation, Morgan Stanley looks to revisit following further clarity on the transformation. While risk-reward looks balanced, there is a very wide range between its $3 bear case and $17 super bull case.
Morgan Stanley sees the stock trading at 5.3x 2012e EV/DACF, ex hedges. While Morgan Stanley thinks a valuation discount is merited by GMXR's current commodity exposure and risk profile, Morgan Stanley sees upside to cash flow estimates and asset value. Post the write-down of the Cotton Valley PUDs, Morgan Stanley sees PV10 support levels at $3/share, while derisking of the Niobrara/Bakken frames the upside.
GMXR closed Tuesday at $6.25
