The market is giving anyone who missed getting on board or getting as much as they wanted a little reprieve. The current price is still a very attractive entry point. You may remember that on the first analyst upgrade on this stock a few weeks back the analyst said the following (from the AP news item):
<Morgan Keegan analyst John Edwards upgraded the company's stock to "Outperform" from "Market Perform." Edwards said conversations with Crosstex management boosted his confidence in the company's outlook.>
Another analyst upgraded the stock a couple of weeks later. Unless something has changed in the last few weeks, we should all get to hear directly the confidence in the company's outlook on the earnings call on Friday. At this time investors will be able to calculate more accurately the future cash flow and likely distribution numbers. Given the past missteps of the CEO with his public comments it is likely that more institutional investors are taking a "show me" attitude with XTEX, thus waiting for clear evidence that things have turned before taking any meaningful position. They would rather pay more and have a higher degree of certainty than take a chance of being wrong.
Every sign points to a positive outcome with the company. When I go back and read past analyst comments none of them foresaw the moves the company has successfully made. The company has already outperformed every expectation I can find from several months ago in their turn-around effort. All that is left is to hear management say it and back it up with some numbers. There is a very good chance that happens on Friday.
If you go back and read my posts under "The Time is Now" from September I have gone into more detail on all of this. The price is up quite a bit since then but it is still very cheap. While risky by MLP standards, I don't think it is nearly as risky as the price indicates given what management has accomplished this year.
Finally, consider that after earnings are reported the analysts will crunch the numbers and weigh in. If things look positive we will see more upgrades and positive analyst comments. The analysts who have already upgraded it will send out a report to their clients reinforcing the buy. Many institutions who took initial positions will buy more given a confirmation that things look good for the company going forward. It seems doubtful the outlook would go negative causing people to sell given everything that has transpired. They don't make that last acquisition without seeing a long term future. I certainly could be wrong but I still see XTEX as the most compelling opportunity I can find right now in the MLP sector.
It is the most compelling MLP bargain right now, I don't think there's any serious question about that. But I don't see full distributions being restored until 2011. First the financing needs to be replaced, and that could take time. Then I believe management will wish to delay distributions to pump up capex, just a guess on my part there, but it's what I would do.
There is also a reasonable prospect of a new financing package requiring periodic paydowns, it's a difficult time to be seeking financing, and there could be a lot of strings. And of course, we can't really be certain what EBIDTA will look like until we get a quarter or two under our belt. Certainly the bottom line earnings will be muted until we get that interest monkey off our back.
Bottom line? Due to less than stellar earnings numbers, distributions not being reinstated anytime soon and a lack of visibility on the financing, I don't expect any further sudden move up beyond the previous range. In a serious correction or a crash, particularly in oil, we could see substantially cheaper prices here. That said, if I didn't already hold a large position, I wouldn't hesitate to buy now in order not to miss the opportunity, in case I'm wrong and it runs. At some point you have to suck it up and buy.
I think management has already satisfied creditors they can live within their means and restore distributions no later than 2Q of 2010 and also undertake capex that will yield higher earnings. I see this company as a EPD or Tepco on the cheap, and I also have a lot of faith in the restoration of dividends to the 2008 levels in 2010.