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Rating Downgraded on Energy Company on Oil & Gas Price Weakening

Streetwise Reports
0 Comments|December 28, 2018

A bearish outlook for both oil and natural gas, as well as a hedge monetization, are among the reasons for the Raymond James rating change.

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In a Dec. 19 research note, analyst John Freeman reported that Raymond James downgraded Antero Resources Corp. (AR:NYSE) to an Underperform rating from an Outperform, generally due to a bleaker outlook for oil and natural gas prices.

Specifically, Raymond James in the short term remains bearish on natural gas and lowered its price forecast for oil, Freeman wrote. Also, the financial services firm noted the current prices Antero is getting for its natural gas "are not as attractive."

Another factor in the downgrading of Antero is that it, future commodity prices aside, may not meet its projected $1.6 billion of free cash flow through 2022 because doing so hinges on the company achieving certain efficiencies and successfully marketing its excess capacity in 2020. "These issues would obviously intensify with any decrease in activity," Freeman pointed out.

In other news, the analyst relayed, Antero announced on Dec. 18 "a hedge monetization consisting of $235 million from the unwinding of 68% of April through December natural gas swap volumes next year (replaced with collars) and $122 million from the resetting of 2020 swap contacts from $3.25 to $3, with the $357 million of total proceeds being used for debt reduction." However, the effect of this transaction is that cash gets pulled from future periods to the present. To reflect the financial move, Raymond James updated its model on the energy company.

Finally, Freeman noted that Antero released production guidance for Q4/18, which is about 400 million cubic feet of unhedged gas. Further, the company projects that with the launch of the Rover pipeline, about 30% of that volume will be sold to premium markets in the U.S. Midwest. Consequently, Raymond James revised its Q4/18 forecast on Antero as well, bumping up Q4/18 production and the premium to Henry Hub on natural gas.

Antero's stock is currently trading at around $9.47 per share.

 

Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from Raymond James, Antero Resources Corp., December 19, 2018

ANALYST INFORMATION

Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst's efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.

The analyst John Freeman, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.

RAYMOND JAMES RELATIONSHIP DISCLOSURES
Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.

Raymond James & Associates, Inc. makes a market in the shares of Antero Resources Corporation.

 


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