- 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.