Best and Worst Case Scenerios for LNCO from Analyst Stifel Equity Research (From Barron's)
Stifel maintained its Buy rating on Linn but lowered its price target from $48 to $33 on the master limited partnership Linn Energy (LINE) and its corporate trading entity LinnCo (LNCO). Linn Energy shares sank nearly 15.75% Wednesday to $22.79, while LinnCo fell 12.5% to $26.91.
The Securities and Exchange Commission on Monday announced an inquiry, and, Stifel highlights, “requested the preservation of documents and communications related to LNCO’s proposed merger with Berry Petroleum (BRY) as well as LNCO’s use of non-GAAP financial measures and its hedging strategy.” Berry Petroleum shares rose slightly Wednesday.
Linn said in a press release here that it remains committed to the merger with Berry, but the timing and the deal itself are called into question. Stifel advises investors thusly:
“If the BRY/LNCO deal falls through and the company NEVER makes additional accretive acquisitions (extremely doubtful in our opinion), we believe LINE units are worth approximately $22 using a discounted cash flow analysis. However, if the BRY/LNCO acquisition falls through but company maintains a conservative acquisition program through 2020, we estimate LINE units to be worth $32 to $35. If we assume the BRY deal is completed in 4Q13, we estimate LINE units intrinsic value to be $35-$40 based on a future discounted cash flow analysis and assuming a conservative future acquisition program.”