LINN Energy's disappointing Q2 profit report marks the third quarter in a row that the company didn't cover its quarterly distribution. The company's book value per share is $18.00 and the shares should not be worth more than that, Barron's contends in its The Trader column.
"In three short months BreitBurn was able to deliver on its promises to get its payout on more solid ground. In fact, this past quarter the company was able to deliver distributable cash flow of exactly $0.48 per unit, which represents exactly a 1.0 distribution coverage ratio. Further, the company sees its distribution coverage ratio increasing throughout the year as it continues to deliver on its oil-focused capital program.
What's truly impressive is that the company was able to deliver such a jump in its coverage ratio without the benefit of an acquisition (its Postle acquisition didn't close until after the quarter ended). That means BreitBurn should be able to deliver a payout ratio in a range of 1.4-1.5 times in the second half of the year thanks to the benefits its oil-focused capital program and its recently closed acquisition. Clearly, the distribution is safe and the company easily has the capacity to continue to grow is payout later this year.
While the company's coverage ratio during the first quarter was worrisome, BreitBurn did a fantastic job to solidify its payout. In fact, the company has plenty of capacity to issue equity in order to pay down the debt it took on to complete the Postle acquisition without causing its coverage ratio to drop anywhere near the danger zone. What that means is that BreitBurn's distribution is not only still safe; right now, it's really rock solid."