Why Barclays Downgraded Linn Energy

Jeffrey Robertson of Barclays downgraded shares of Linn Energy LLC LINE on Wednesday to Equal-weight from Neutral with a price target lowered to $12 from a previous $29 following the company's reduced capital budget for 2015 and a cut in its annualized distribution announced last week.

“The revised capital plan seeks to maintain production while better aligning cash inflows with outflows and providing more flexibility to manage the balance sheet,” Robertson wrote. The analyst does add that the implied yield of 11 percent on the reduced distribution is still “attractive” but lower hedging gains and rising leverage ratios are likely to continue pressuring the balance between cash flow, capital spending and distributable cash.

The analyst's $12 price target assumes a target yield of 10.25 percent on the revised annualized distribution of $1.25, versus a target yield of 10 percent on the prior distribution of $2.90.