Long case: company is cash flow positive, and likely will be in 2016 and 2017 as well. Shareholders will continue to own 65% of company. Oil will one day be much higher.
Golftheband - the more risk you take, the more you can increase, but also the greater the odds of losing it all. It works just like roulette although the average is an 8% annual return in the stock market vs a slow loss in roulette.
I can suggest some near bankrupt companies that will go up 50x if oil doubles in the next few months. I can also find stocks on the opposite end of the spectrum that will go up a 5%+ per year almost guaranteed (like Costco).
martinrwhite - although I am bullish long term on this, I just wanted to point out that the Value Line 8x cash flow is not the same "cash flow" as the "free cash flow" reported by the company. But none the less, I agree the stock is under priced and will slowly rise as they generate free cash flow to either pay down debt or make an acquisition.
You're overthinking this with your candy analogy. Basically, people are willing to pay about 10x expected cash flow per share based on expected numbers a year or two out. As the company has news, the picture becomes clearer and the stock reacts appropriately. My estimate is terminal cash flow per share of $2 and a share price of $20 or more. In an ideal case, a buyout would take it higher.
Company has already announced that it will still make lots of money at libor plus 10. No bankruptcy anytime soon.
No more dns, you talk so much you don't even remember what you said? Here's the thread where you predicted bankruptcy by February op-ex, which has come and passed.
I don't really care what you say, but just want to keep others informed.
You also said they'd be bankrupt by February of 2016. Totally and completely wrong? Just admit it.
Interesting they didn't refinance with a convertible bond but instead opted for a higher priced bond instead. Another sign that management thinks the stock is dramatically undervalued.
You are long ATW but think oil will tank? Not too smart.
Rig companies are the canary in the coal mine. Looks like oil and rig companies have bottomed.
Hard to say. The bonds can get sold off in the secondary market to overseas companies who have no understanding of any legal obligation.
But ultimately it does take bad news to really drive the price of a stock down, so the convertibles may amplify the drop but aren't the reason for the drop IMHO.
I think that's part of it. If the buyer of convertible bonds is in the money, they short the stock at the point they are in the money. So if the stock continues up, they're whole, and if the company goes under, they've shorted and are whole. It is win-win. They'll just keep rolling their shorts and puts forward and as they make money on the puts, they can close out their bond positions at a loss and still have a big profit.
Good report. Thanks for sharing.
Feels like it did when AbbVie came out with a competitor that was slightly inferior at the time. Brought prices down but didn't lose much market share. This company is pricing in 50% drop in pricing and 50% market share for HCV. I doubt it will be that bad.
nxn95132 - you aren't taking into account cash. Share price won't fall to $48 when there will be $30 of cash on hand in a year. $48 + $30 of cash is $78 and that would be a worst case. The flip side is that we could see it normalize at $10 billion of earnings, and a 15x PE and another $30 of cash on hand would put it substantially higher than it is today.
All I was saying is that it is pricing in a worst case scenario with HCV falling 75%.