In a research report sent to investors today, Canaccord Genuity analyst Stephen Berman maintained a Hold rating on Halcon Resources (NYSE:HK) and reduced his price target to $1.75 (from $2.00), following yesterday’s news that the company has reduced its 2015 capex budget.
Berman noted, “The company now intends to run three rigs total, with two in its Fort Berthold area in the WB and the other in its El Halcon acreage in the EF. This is down from the plan to run six rigs it announced in early November. Notably, this is also the second time HK has cut its 2015 budget; prior to the downturn in oil prices the company had planned to operate 11 rigs in 2015 and would have likely spent ~$1.2B.”
The analyst explained his new price target, “Our $1.75 price target represents a 40% discount to a $2.85 NAV. Our prior $2.00 target reflected the same discount to a ~$3.40 NAV. The decrease in our NAV comes from higher risking of HK’s undeveloped WB and EF acreage. We value proved reserves using long-term prices of $84/Bbl for oil and $4.75/Mcf for natural gas.”
Bottom line, “HK has built positions in the Williston Basin (WB), the Eagle Ford (EF), and the Tuscaloosa Marine Shale (TMS), three leading liquids-rich US resource plays. While the company has good acreage positions in our view, high financial leverage and a premium valuation keep us on the sidelines.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Stephen Berman has a total average return of -19.3% and a 30.6% success rate. Berman has a -22.9% average return when recommending HK, and is ranked #3410 out of 3451 analysts.