Who is Global Hunter and why should I give a rats #$%$ what they think ? There are traders and there are investors in Linn energy. The traders care about today and tomorrow, the investors care about this year, next year and beyond. If you're an investor in Linn, than Global Hunter is just "background noise" to be ignored.
We cannot currently justify raising the target price, and we believe there is little upside left given where Linn (ticker: LINE) units are trading. We also weigh in on the put debate. We can see the arguments on both sides, but conclude that with good execution, Linn will be able to continue its current distribution growth trajectory.
We continue to believe that Linn's accounting treatment of puts is fully consistent with GAAP. However, we also disagree with how the company treats put premiums in its non-GAAP representation of distributable cash flow. We believe amortization of put premiums should be subtracted from discounted-cash flow, in effect being treated as maintenance capital. By this method, and using our current estimates, Linn falls short of covering its distribution over the 2009-2016 estimated time period by approximately $125 million.
This appears to be a recurring expense. Linn has spent an average of $233 million per year over the past four years on puts, with $583 million of that spent in 2012 alone. Management has indicated that it has no plans to purchase more puts in 2013, and we hope that is the case. All of the below scenarios assume no additional put purchases.
We do not believe the distribution is in danger. Using our methodology, by 2016, distribution coverage is back to 1.01 times. If in fact no more puts are added to the portfolio in the next four years, amortization should disappear entirely in 2017, resulting in a meaningful coverage cushion from that point on. In the interim, Linn will likely complete additional accretive acquisitions.
We acknowledge the risk Linn faces with its relatively high enterprise-wide decline rate and the risk of relying on acquisitions to grow. Management will need to execute very well in order continue its distribution growth sustainably.
A major risk remains natural-gas prices. Out past the current hedge horizon, Linn's cash flow continues to be sensitive to oil and gas prices. Prices can change dramat
Today it appears that short sellers are doubling their efforts. Several entire post threads with fictitious stories full of robo-approvals. The GH downgrade is being re-broadcast on Barrons. Pretty pathetic that Barrons would run yesterdays #$%$.