In a research report released Tuesday, MLV analyst Adam Fackler reiterated a Hold rating on Linn Energy (NASDAQ:LINE), as the company announced a 57% reduction in its distribution to $1.25/unit (from $2.90/ unit) on an annualized basis. No price target was provided.
Fackler wrote, “While the distribution cut is not a surprise (we had forecast coverage of ~0.7x for 2015 at $60/Bbl and $3.50/Mcf), the timing was earlier than anticipated. At its most basic level, the lower distribution improves the partnership’s financial flexibility. Based on the partnership’s updated 2015 budget and a $60/Bbl and $3.50/Mcf price environment, LINE expects 2015 coverage of ~1.2x; at the current strip, we expect 2015 coverage of 1.05x. On a broader scale, we believe LINE’s distribution cut will encourage other partnerships with stressed coverage to cut distributions sooner rather than later.”
The analyst concluded, “In 2014, we were admittedly impressed with LINE’s portfolio restructuring but were concerned by the partnership’s distribution security. While its revised distribution appears safe through 2016 in the current commodity price environment, we are maintaining our Hold rating as units appear appropriately valued based on the lower distribution. We plan to reassess our rating as transactions and/or higher commodity prices provide increased visibility into future distribution growth.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Adam Fackler has a total average return of -33.2% and a 25.0% success rate. Fackler is ranked #3265 out of 3429 analysts.