Market Overview

UBS Downshifts Whiting Petroleum And Ultra Petroleum, Sets Single-Digit Price Targets

Related WLL
Najarian Brothers See Unusual Options Activity In Comerica And Whiting Petroleum
Mid-Afternoon Market Update: Trina Solar Gains Following Go-Private Deal; Insperity Shares Drop
Related UPL
3 Companies Filed For Chapter 11 Bankruptcy Today
10 Stocks Moving In Monday's Pre-Market Session
  • Shares of Whiting Petroleum Corp (NYSE: WLL) and Ultra Petroleum Corp. (NYSE: UPL) have lost over 30 percent since January 6.
  • UBS analysts downgraded the ratings on both companies, while reducing their price targets
  • A lower gas price outlook and high financial leverage are the main concern areas, the analysts noted.

Whiting Petroleum

Analyst William Janela downgraded the rating for Whiting Petroleum from Buy to Neutral, while reducing the price target from $19 to $7.

While Whiting Petroleum is poised to benefit from an eventual oil price recovery, the absence of any near-term catalysts, lack of medium-term growth visibility and the company’s high debt load are expected to be reflected in the near-term stock valuation, Janela said.

The analyst believes that Whiting Petroleum will need to reduce its 2016 capex and production guidance to better align spending with discretionary cash flow. The capex forecast for 2016 has been reduced to $800 million, down 60 percent y/y and 20 percent below consensus.

“Under our lower capex forecasts, we estimate WLL still outspends discretionary cash flow by ~$100MM in 2016 at our price deck ($40/Bbl), pushing debt/EBITDX to ~5.3x, above the oily peer average of ~4.0x,” the UBS report mentioned.

Janela believes that Whiting Petroleum’s relatively high debt burden limits its ability to quickly ramp activity and resume production momentum once the oil prices recover.

The CFPS estimates for 2016 and 2017 have been reduced from $5.00 to $3.35 and from $7.45 to $4.75, respectively.

Ultra Petroleum

Analyst William A. Featherston downgraded the rating for Ultra Petroleum from Neutral to Sell, while reducing the price target from $5 to $1.

Featherston believes that Ultra Petroleum will have to struggle to maintain a capital spending profile that is adequate to deliver attractive growth, given the company’s high financial leverage and the need to spend within its cash flows.

The analyst expects Ultra Petroleum’s leverage to remain high, forcing the company to opt for asset sales, equity issuance, refinancing and debt restructuring.

The CFPS estimates for 2016 and 2017 have been reduced from $2.70 to $1.15 and from $3.90 to $1.90, respectively.

Latest Ratings for WLL

Oct 2016Mizuho SecuritiesInitiates Coverage onNeutral
Sep 2016FBR CapitalInitiates Coverage onMarket Perform
Aug 2016CitigroupMaintainsBuy

View More Analyst Ratings for WLL
View the Latest Analyst Ratings

Posted-In: UBS William A. FeatherstonAnalyst Color Short Ideas Downgrades Price Target Analyst Ratings Trading Ideas


Related Articles (UPL + WLL)

View Comments and Join the Discussion!