FBR analyst Chad Mabry shares insight into Gastar Exploration Inc (NYSEMKT:GST) upon reevaluating the stock’s valuation amid a recent rise in pricing. Presently, Mabry sees GST’s risk/reward factor as “valued fairly.” Amid the analyst’s new thoughts since his last recommendation, he downgrades GST from an Outperform to Market Perform, while increasing the price target from $1.25 to $1.50, which represents a 9% increase from where the shares last closed.
Mabry explains, “Since we last affirmed our Outperform rating on October 3, 2016, the stock has increased by 64% (versus -1% for the XOP). The latest surge was driven by some major moves in the STACK play, highlighted by a joint development agreement (JDA) and a non-core acreage sale. We are net positive on these developments, which should help delineate the company’s upside potential in the play and enhance its liquidity.”
Additionally, the analyst anticipates around $8,500 per acre for the energy company’s STACK upside, compared to recent merger and acquisition deals of $10,000 to $12,000, which is now implied in his price target adjustment.
On a positive note, Mabry opines, “GST has addressed what had been an obvious weakness by bringing in external capital for its delineation drilling program. Under the JDA, the company could drill up to 60 operated wells in the STACK, of which five are underway. The effort accelerates its prior plans and reduces its capital requirements, which therefore could help command a higher value in the event of a sale.”
However, “While the company has done an admirable job of generating liquidity via non-core asset sales, we are becoming concerned that GST’s opportunity set is diminishing in the process,” Mabry warns. Moreover, “leverage remains a concern” to the analyst.
Ultimately, ahead of third-quarter earnings anticipated sometime this coming month, “Investors will be looking for early data from the company’s delineation drilling program,” Mabry concludes.
The analyst projects a carbon footprint of products (CFPS) of $0.01 on production of 5.7 MBOE/d, compared to consensus expectations of ($0.01) in CFPS on production of 5.6 MBOE/d.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, analyst Chad Mabry is ranked #4,025 out of 4,183 analysts. Mabry has a 38% success and faces a loss of 17.2% in his yearly returns. When recommending GST, Mabry loses 0.1% in average profits on the stock.
TipRanks analytics demonstrate GST as a Buy. Based on 4 analysts polled in the last 3 months, 50% rate a Buy on GST, while 50% maintain a Hold. The consensus price target stands at $1.44, marking a 5% upside from where the stock is currently trading.