Stifel Upgrades EPL Oil & Gas, Says Underperformance Creates Buying Opportunity

In a report published Friday, Stifel analyst Amir Arif upgraded

from Hold to a Buy rating with a $32.00 price target. Arif noted that the 24% drop in shares since the third quarter earnings creates an attractive opportunity for investors, “where activity is about to pickup creating double digit organic production growth.” The analyst believes the upcoming annual reserve report will demonstrate a strong underlying proved NAV. This should also add floor for the stock. Stifel continued to assess the company's underperformance noting, “(1) operational issues for three high rate oil wells in West Delta 29 reduced production by approximately 800 boe/d permanently as the wells did not return to their pre-shut-in levels. (2) Disappointing production guidance that was less liquids weighted and resulted in a reduction in our cash flow estimate while total capex was greater than expected due to higher P&A spending. (3) LLS premium to WTI (peaking at 33% above WTI) dropped to 4% premium. With operational issues, 2014 guidance, and a decreasing LLS premium now behind the company, we think most of the bad news should be out of the way (operational issues are an ongoing greater risk for small cap offshore producers).” Shares of EPL Oil & Gas closed at $26.87 on Friday.