Imperial Capital Moves To Sidelines On Alta Mesa After Tough Q2

Exploration and production company Alta Mesa Resources Inc AMR reported Tuesday with disappointing second-quarter results that sent shares sharply lower.

The Analyst

Imperial Capital analyst Irene Haas downgraded Alta Mesa from Outperform to In-Line and lowered the price target from $11 to $8.

The Thesis

Alta Mesa's Q2 results — including its production, adjusted EBITDAX and cash flow per share — were all below expectations, Haas said in a Wednesday note. (See the analyst's track record here.) 

The company lowered its 2018 production guidance by 15 percent and said its Kingfisher Midstream subsidiary is unlikely to meet its prior EBITDA guidance of $95 million to $110 million.

"While we understand that the production glitch is likely one time and that the rig ramp should boost production in 2019, we are not clear on how the midstream business will evolve and at what pace, as third-party activities are not picking up in the gas gathering segment as we had anticipated," Haas said. 

Imperial Capital's price target for Alta Mesa is about 68 percent above the recent stock price, something the analyst said is supported by Alta Mesa's risk profile and share price volatility. 

Imperial lowered its estimates for the exploration and production company.

The Price Action

Alta Mesa shares shed 21.55 percent to $4.77 Tuesday in reaction to the quarterly results and were trading down another 5.66 percent Wednesday morning. 

The shares were up about 39 percent year-to-date through Monday.

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Posted In: imperial capitalIrene HaasAnalyst ColorEarningsNewsDowngradesPrice TargetAnalyst Ratings