Ahead of the Bell: Unit Corp. shares downgraded

Analyst downgrades shares of oil and gas exploration company Unit Corp. on stock appreciation

• On 9:02 am EDT, Tuesday September 22, 2009

NEW YORK (AP) -- Shares of oil and gas exploration company Unit Corp. have risen to a fair value, said an analyst on Tuesday as he downgraded the stock.

Shares of the company closed at $43.37 on Monday. Since reaching a 52-week low of $17.75 in March, the stock has increased nearly two and a half times.

SunTrust Robinson Humphrey's John Gerdes downgraded the stock to "Neutral" from "Buy" since the stock has climbed to Gerdes' target price of $43 and as production expectations look flat.

Compared with 2008 levels, Gerdes expects minimal production growth in 2009, which is in line with company estimates. Gerdes also noted that the company's exploration and production cash margins are 10 percent lower than the sector. Gerdes predicts drilling margins will bottom in early 2010 at $5,000 per day, which is down about 40 percent from a peak in the fourth quarter of 2008.

Gerdes maintained his full-year profit estimate of $2.58 per share and cut his 2010 estimate to $2.88 per share, down from $2.95 per share. Analysts polled by Thomson Reuters estimate 2009 and 2010 earnings of $2.50 per share and $2.82 per share, respectively.

In premarket trading Tuesday, the stock rose 22 cents to $43.59.