Compelling Value Seen In Shares Of Halcon Resources

Wunderlich Securities has upgraded Halcon Resources Corporation HK to Buy from Hold, saying the recent weakness offers a good entry point given the company's solid assets, potential successes of an M&A strategy and a compelling valuation.

Upgrade Justification

The upgrade comes after Halcon’s third-quarter EPS of $0.39 handily beat the brokerage’s $0.21 forecast on higher-than-expected revenues despite a company-planned shortfall in production.

Further, the company cut its debt and improved balance sheet, which improves the value proposition of Halcon given its solid organic growth within planned cash flows. The company exited bankruptcy in September.

Optimism Ahead

“With these moves behind them, we believe HK provides compelling value for investors looking at higher-beta names with exposure to the Williston and Eagle Ford,” analyst Jason Wangler wrote in a note.

On the M&A front, apart from Williston and Eagle Ford, Halcon is targeting areas outside the Permian, a move that bodes well for the growth of the company. Further, a flexible balance sheet would help the company seamlessly pursue its M&A strategy as well as grow organically.

Shares of Halcon closed Monday’s trading at $8.19. Wangler has a price target of $12, implying a potential upside of 46.5 percent. At last check, Halcon was up 8.91 percent in Tuesday's morning session, trading at $8.92.