Imperial Upgrades Gastar To Outperform, Sees 37% Upside

Gastar Exploration Inc GST reported revenue of $87.7 million and adjusted EBITDA of $60.3 million for the financial year ended March 2016. Imperial Capital’s Kim Pacanovsky upgraded the rating for the company from In-Line to Outperform, with a price target of $1.30. The price target reflects 37 percent upside to the share price.

Increased Equity To Aid Higher Production

Gastar recently completed an equity offering of 50 million shares at $0.95 per share, and may exercise the green shoe option of 7.5 million shares. Total proceeds of $51.4 million are expected to allow Gastar to accelerate a STACK delineation drilling program, which would have a positive impact on production levels, analyst Kim Pacanovsky mentioned.

The company’s 1Q16 share count is estimated to increase by 70 percent with the exercise of the green shoe option. The EPS estimates for 2016 and 2017 have been raised from -$0.63 to -$0.45 and from -$0.17 to -$0.13, respectively.

Pacanovsky believes the equity infusion would increase the long-term value for common stockholders more than if the company had remained capital constrained.

Gastar’s liquidity has improved and the company now has adequate funds to pay its coupon in November 2016. The company is well positioned to de-risk its acreage in the Meramec, the Osage and Oswego, the analyst added.