Northland Sidelined On Rex Energy Corporation (REXX) Despite Better-Than-Expected Guidance

Rex Energy Corporation (NASDAQ:REXX) shares have fallen back 9% after seeing a sharp 17% rise last week thanks to the release of a two-year financial and operational update that initially excited investors. Though Northland analyst Jeff Grampp was impressed with the company’s guidance that outperformed expectation, he nonetheless remains sidelined overall on the firm’s profile.

As such, the analyst reiterates a Market Perform rating on REXX with a price target of $1.00, which represents a close to 27% increase from where the shares last closed.

However, Grampp has improved projections taking into consideration the guidance for 2017 and 2018 as well as the company’s Warrior South asset sale. Subsequently, the analyst raises his EPS forecast for 2017 from ($0.41) to ($0.30) and for 2018 from ($0.39) to ($0.26). Additionally, the analyst lifts his CFPS estimate from $0.19 to $0.34 for 2017 and from ($0.08) to $0.18 for 2018.

REXX’s 2017 guidance indicates production of 194 to 204 MMCFEPD, just under the analyst’s 206 MMCFEPD, which he attributes to the sale of its Warrior South properties producing 9 MMCFEPD. Meanwhile, Net CapEx of $70MM to $80MM outclasses Grampp’s $28MM projection. Grampp believes, “Due to timing of flowing wells to sales, production growth is expected to be backend loaded with December 2017 y-o-y production growth of 15%-20%.”

Moreover, the analyst notes, “The company expects its Net Debt/EBITDAX ratio to decrease 35%-40% y-o-y in 2017 and 15%-20% in 2018, noteworthy improvements that are primarily driven by higher production and realized prices.”

“Rex provided guidance for 2017 and 2018 that included higher production, favorable price realization guidance and expected reductions in leverage metrics. Additionally, the company will continue an operated drilling program that will allow it to HBP/HBO ~1,000 net drilling locations by year-end 2017. While the guidance was better than expected, the company’s leverage profile is still expected to remain elevated,” Grampp surmises.

As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, Jeff Grampp is ranked #4,243 out of 4,361 analysts. Grampp has a 24% success rate and faces a loss of 18.5% in his yearly returns. When suggesting REXX, Grampp forfeits 29.9% in average profits on the stock.

TipRanks analytics indicate REXX as a Buy. Based on two analysts polled by TipRanks in the last 3 months, 1 rates a Buy on REXX stock while 1 maintains a Hold. The 12-month average price target stands at $1.00, marking a nearly 27% upside from where the stock is currently trading.

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