UPDATE: BMO Capital Markets Upgrades Union Drilling to Outperform on Limited Downside

BMO Capital Markets raised its rating on Union Drilling

from Market Perform to Outperform while reiterating its $6 price target. BMO Capital Markets commented, "The current EV/Rig of roughly $3.5 million is by far the lowest in our coverage universe and, we believe, reflects a valuation only modestly above equipment salvage value, indicative of a high probability of financial failure. Given our view that Union is in little danger of failing to meet its debt obligations, we believe that the downside is limited at current levels and that the shares represent a decent risk-adjusted return. Put another way, if every rig in the fleet were sold, Union would only have to fetch an average of about $3.3 million/rig to cover the debt and have a residual value to equity holders equal to the current share price. Union Drilling closed at $3.75 on Thursday.