Whiting USA Trust: Waiting for the Street to Gang Up on the Stock

| About: Whiting USA (WHX)

  • I was looking for $0.54 cents for the quarter for Whiting USA Trust I (NYSE:WHX) and thinking I'd probably be a little light, with volumes of 3.565 MBOEpd and a conservative cut at prices and costs:
    • My production number represented a 3% sequential decline
    • Production was slightly lower at 3.538 MBOEpd, and while we haven't seen these kind of declines for the trust of yet, we have been expecting them.
  • Meanwhile the Street was looking for $0.72, a just about unreachable number (again).
    • The three analysts who cover the name are in group-hatred mode on the name with Sell ratings.
    • Price targets closer to $12 which they estimate to be the discounted aggregate future stream of distributions.
    • So in essence they "forced a miss" to help their case that the name should be trading lower.
  • My game plan? Simply wait for the pillow party on WHX shares to commence and pick up the pieces:
    • Twice in the recent past, the Street has ganged up on the name, downgrading and/or reiterating underperform and Sell ratings on the same day.
    • Most recently they did this on 1/24/11 and the stock fell as much as 28% within hours. There was no news event, they simply dog-piled the royalty trust, one after another.
    • My guess is they will do it again, either today or over the next several days.
    • For 2011, I model distributions of $2.63 per unit which comes to an equivalent yield of 15.1% on Monday night's closing price of $17.07 or a 19.8% yield if the name gets to $13.
    • See the updated model below, recomputed for:
      • declines from this quarter's production level at 5% decline per quarter,
      • operating costs accelerated to $24 / BOE (you'd expect a little higher cost as the trust gets a little oilier (it was 61% oil this past quarter vs. 58% historically)
      • full $250,000 per quarter trust costs
      • and the rest of the assumptions that are listed at the bottom of the model.
    • I sold the name at $23.10 last October after collecting a couple of nice distributions and my plan is to add it back in the lower teens once the Street has beat it down over this miss.

2010 Was A Strong Year for Distributions

2011 Looking Pretty Stout As Well On Higher Commodity Prices But Also Higher Costs and Lower Production

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WHX over the next 72 hours.