Anymore these days when I see Goldman Sachs involved as a main underwriter on anything other than a lead pipe lock IPO I'm automatically considering the stock for a short. This particular opportunity, although primarily underwritten by Citigroup - which is also almost always a leading indicator for poor returns, is another great example of a Goldman magic trick. I mean nobody can get an investor to stare at the magician's left hand while the right hand pulls the rabbit out of the hat on the IPO roadshow. This initiation article will focus on Eclipse Resources Corporation (ECR), a bloated, absurdly valued Oil and Natural Gas E&P company which is ripe for a short. This article will make the argument that based on price to sales multiple peer comparison, the incredible and growing debt burden and expense, and the poor cash management as a result of short-term and ongoing CAPEX that the company will be valued considerably lower on all durations.
Who is ECR?
"Eclipse Resources Corporation acquires and develops oil and natural gas properties in the Appalachian Basin. The company operates approximately 81% of its net acreage in the Utica Core Area and Marcellus Project Area. As of March 31, 2014, it had acreage of approximately 227,230 net acres in Eastern Ohio. The company's estimated proved reserves consisted of 109.6 billion cubic feet of natural gas equivalent." (SOURCE: Yahoo! Finance Stock Summary ECR)
ECR held an IPO on 6/20/2014 and sold 30,300,000 shares at $27 per share, which believe it or not was to the low end of the offering range. Selling shareholders made up 8,800,000 of the total shares sold of which ECR received no proceeds. In midday trading, the stock is currently priced at $22.57 and has an approximate valuation of $3.56 billion.
What does ECR do?
