Source: Streetwise Reports 05/23/2019
The likely reasons for this energy company’s recent stock activity and underperformance are discussed in a Stifel report.
In a May 17 research note, Stifel analyst Derrick Whitfield reported that a recent selloff and roughly 30% relative underperformance of Roan Resources Inc.’s (ROAN:NYSE) stock translate into a buying opportunity for investors. “We are not concerned with Roan’s liquidity as we project the company to be free cash flow neutral by year-end with growing production,” he added.
Yet, Stifel lowered its target price on the energy firm to $11 per share from $13, which compares to its current stock price of $2.83 per share.
The selloff occurred after the company management’s conference call on May 14 and Q1/19 investor presentation the next day, during which it “disclosed several impactful developments,” relayed Whitfield.
For one, Roan’s executive chairman of the board Joseph Mills expressed during the call the board’s unhappiness with Roan’s performance in 2018 and “outlined a couple of material strategic missteps by management,” Whitfield indicated. For example, the decision to expand to eight rigs was far too aggressive for a company of Roan’s scale and maturity, according to Mills. About 10 drilled but uncompleted wells were spaced too tightly and therefore underperforming.
Consequently, for this year’s drilling and completion operations, Mills indicated that Roan will space the wells at “5–8 WPS and target completions for a two-mile lateral with 30–45 stages per well, 1,500–2,500 pounds per foot and 8–16 cluster per stage.” While correcting for 2018’s problems is laudable, this approach may be going too far, Whitfield wrote.
Two, management lowered its 2019 production and capex guidance, highlighted Whitfield. It reduced 2019 production by 7% to 51.5–55.5 million barrels of oil equivalent per day (51.5–55.5 MMboe/d). It decreased the number of wells to be put online this year by 3.4% to about 70. It lowered capex by 1.8% to $515–555 million.
For Q2/19, the company guided to production about 50 MMboe/d, which is 8.8% below consensus’ forecast. It expects capex of $155 million, which is about 2.5% above the Street’s estimate.
“We believe the negative revisions (production and resource) and management mergers and acquisitions commentary are likely the greatest two drivers” of Roan’s selloff and underperformance, Whitfield commented.
Roan also announced Q1/19 earnings, which were in line, along with a number of positive operational updates,” noted Whitfield.
Stifel maintained its Buy rating on Roan.
Sign up for our FREE newsletter at: www.streetwisereports.com/get-news
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures from Stifel Nicolaus & Company, Roan Resources., May 17, 2019
I, Derrick Whitfield, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Derrick Whitfield, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com.
For a price chart with our ratings and any applicable target price changes for ROAN click here.
Stifel or an affiliate expects to receive or intends to seek compensation for investment banking services from Roan Resources, Inc. in the next 3 months.
The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on various factors, including Stifel’s overall revenue, which includes investment banking revenue.
As a multi-disciplined financial services firm, Stifel regularly seeks investment banking assignments and compensation from issuers for services including, but not limited to, acting as an underwriter in an offering or financial advisor in a merger or acquisition, or serving as a placement agent in private transactions.
( Companies Mentioned: ROAN:NYSE,