Berry Petroleum Shares Offer Over 50% Upside Potential, Goldman Sachs Says In Bullish Initiation

Berry Petroleum Corp BRY recently offered 13.044 million shares in an IPO, with the offering priced at $14 on July 26.

The Analyst

Goldman Sachs analyst John Nelson initiated coverage of Berry Petroleum with a Buy rating and 12-month price target of $20, suggesting about 56-percent upside to current levels.

The Thesis

Investors seem to underappreciate the company's ability to generate differentiated free cash flow in 2019, Nelson said in the initiation note. (See the analyst's track record here.) 

The analyst said he views the estimated 7-percent pre-dividend free cash flow yield — versus the peer average of negative 5 percent — as dislocated from fundamentals.

Berry Petroleum, an oil E&P focused on non-conventional development opportunities in California, has been able to manage with low maintenance capex due to its mature asset base, Nelson said. This has allowed the company to offer competitive growth and free cash flow, he said. 

Goldman sees the company's California focus as vesting it with near-term benefits due to upside price risks for coastal Brent crude relative to inland WTI crude.

"With legacy California industry oil production in decline, we anticipate BRY's oil price realizations will remain linked to coastal/Brent oil prices over the medium-term," Nelson said. 

The Price Action

Berry Petroleum shares have lost about 6.6 percent since their listing.

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