Linn Energy (LINE +1.3%) looks OK despite yesterday’s disappointment that sparked a 4.6% selloff in its shares, Raymond James believes, as the firm reiterates its Outperform rating, citing stability in the distribution, upside from the horizontal Wolfcamp acreage position and the sheer breadth of growth outlets available to the partnership.
Meanwhile, UBS maintains its Buy rating, encouraged by the proved reserve update as LINE was able to replace 123% of reserves with the drillbit (excluding acquisitions); the firm likes management's consideration of a Midland Basin asset swap into a longer lived slow decline reserve productive asset.
Linn Energy (LINE -5.6%) is sliding after reporting disappointing Q4 earnings, while revenues from oil, natural gas and natural gas liquids rose 27% Y/Y to $585M but fell short of analyst consensus estimate of $654M.
Q4 average daily production rose 11% Y/Y to 889M cfe/day, but was up only 5.5% after stripping out Berry's contribution; expects Q1 2014 production of 1.07B-1.1B cfe/day and FY 2014 output of 1.07B-1.14B cfe/day.
Howard Weil downgrades shares to Sector Outperform from Focus Stock, as the latest quarter and outlook have the firm's estimates of coverage moving down, although a Permian deal could improve coverage very quickly.
LinnCo (LNCO +1.2%) is upgraded to Outperform from Neutral with a $37 price target at Baird to match the rating for Linn Energy (LINE +0.1%) on the premise that LNCO shares distributed in the Berry merger have or soon will have found steady hands and that a LNCO premium to LINE could re-emerge.
For both entities, the firm likes the potential for an accretive Permian asset swap or monetization as a near-term catalyst.
LINE/LNCO were upgraded yesterday at Howard Weil, and LNCO was upgraded at J.P. Morgan earlier this month.
Linn Energy (LINE +1.4%) and LinnCo (LNCO +1.1%) are upgraded to Focus Stock from Sector Outperform at Howard Weil as a result of the potentially game-changing transaction around Linn's now-60K net acres prospective for horizontal Wolfcamp drilling.
The firm notes Linn enters 2014 in strong shape after a difficult 2013 after closing the Berry transaction, and the new assets could yield better capital efficiency upon seeing the combined budget and expected production growth over the next few months.
The firm says the Berry integration should be relatively smooth as Linn has had ample time to prepare, but most importantly, the companies' combined Permian position offers a myriad of options to convert the non-producing horizontally prospective acreage into cash flow.
Linn Energy (LINE +3.3%) is upgraded to Strong Buy from Outperform with a $37 price target at Raymond James, as the SEC's endorsement of its S-4, increased Q4 cash flow guidance and the successful closing of the merger with Berry Petroleum remove overhang in the shares.
Relative weakness in LinnCo (LNCO +4,1%) is only temporary, the firm adds, expecting shares to hold the historical average of a 7%-8% premium over LINE.
Linn Energy (LINE), LinnCo (LNCO) and Berry Petroleum (BRY) say the final S-4 registration statement has been declared effective by the SEC, and the companies also have filed definitive proxy materials with the SEC for the purpose of voting on the previously announced merger agreement.
Linn Energy (LINE -3.4%; LNCO -4.3%) expects to file today the last regulatory document required in its deal to buy Berry Petroleum (BRY -0.3%), which after months of delay could close as early as mid-December, CEO Mark Ellis says.
And because Linn’s revised deal for BRY adding another $600M in stock had only minor changes, regulators likely will approve it “fairly quickly," Raymond James analyst Kevin Smith says, also expecting more consolidation in the upstream MLP sector over the next 3-5 years as eventually other companies will copy the Linn structure.
However, LINE said the SEC's informal inquiry into its use of non-GAAP accounting measures is ongoing.