Imperial Cuts Jones Energy Price Target By 80%

Imperial Capital’s Kim Pacanovsk downgraded the rating for Jones Energy Inc. JONE from Outperform to In-line, while slashing the price target from $7.50 to $1.25.

Jones Energy’s initial capital budget plan for 2016 reveals that the company has suspended all new drilling activity until it is able to achieve acceptable rates of return at strip prices.

“While we continue to advocate that E&Ps do not outspend cash flows for growth’s sake in the current environment, we believe that JONE is particularly disadvantaged in this challenging environment due to its dual class share system and the unfamiliarity of its Cleveland play to broader investors,” analyst Kim Pacanovsk wrote.

In the 12 months ended September 30, 2015, Jones Energy generated revenues of $232 million, adjusted EBITDAX of $276.5 million and adjusted EPS of $0.48. The company had cash and cash equivalents worth $23 million and long term debt of $750 million as on December 31, 2015.

Pacanovsk believes that Jones Energy is likely to survive this extended downturn, given its strong 2015 reserves, no near-term maturities and liquidity of $422 million. He added, however, that the SMID cap E&Ps that are capable of growing production without outspending cash flow may offer greater growth prospects and less risk in the current environment.

The EBITDA estimates for 2016 and 2017 have been reduced from $228 million to $145.2 million and from $238.5 million to $125 million, respectively.