Magnum Hunter Downgraded, Price Target Now $1.25 At Imperial Capital

In a report published Wednesday, Imperial Capital analyst Kim Pacanovsky downgraded the rating on

from In-Line to Underperform, while lowering the price target from $1.75 to $1.25. The analyst believes that the share price is likely to drop below its current level, going forward. According to the Imperial Capital report, "Even if MHR is successful in raising $100mn or more of cash in the relatively near term, we believe that in its current operating configuration the firm will outspend cash flow by roughly an equal amount in the latter three quarters of 2015. If the company were to raise all of the cash it has targeted through divestitures and JVs, then it likely would have enough liquidity to move through 2016, but would still need to raise considerable cash for 2017 activity." The analyst believes that given the company's debt and preferred burden, as well as transactional risk, Magnum Hunter is likely to face challenges to generation adequate funds to spur growth, unless gas prices begin to rise. The company now expects the sale proceeds from its West Virginia non-core segment to be lower than earlier anticipated. Although Magnum Hunter has announced liquidity initiatives worth $300 million, the analyst believes that there could be significant risk to achieving this target, given the current dollar levels. Also, the liquidity initiative announced in April 2015 by the company is now estimated to bring in almost half the expected amount. Therefore, the company has added new initiatives to its list, including further acreage sales in Utica and a Marcellus drilling program. The EPS and EBITDAX estimates for 2015 have been lowered.