Petroleum Development shares fall with downgrade

Shares of Petroleum Development Corp. tumble as analyst cuts stock to 'Neutral' from 'Buy'

• On 12:03 pm EDT, Thursday October 15, 2009

NEW YORK (AP) -- Shares of Petroleum Development Corp. fell Thursday, as an analyst downgraded the oil and gas company's stock, citing significant recent price appreciation.

The company's shares dropped 99 cents, or 4.6 percent, to $20.69 in midday trading. Since mid-August the stock has soared 67 percent to close Wednesday at $21.68.

SunTrust Robinson Humphrey's John Gerdes said Petroleum Development's stock has risen to a fair value and downgraded it to "Neutral" from "Buy."

"The stock has essentially achieved our $22 target price, which we increased by $2 to reflect improving Rockies gas price differentials and a 50 cent increase in our long-term natural gas price forecast," Gerdes said in a note to clients.

Contributing factors to Gerdes's downgrade include the company's inferior capital productivity compared with its peers, and lower cash margins due to the company's small scale and high overhead costs. Also, in response to low gas prices this year, the company deferred drilling activity in two of its three core producing areas.

Even though Petroleum Development trades at a 40 percent discount to its peers, it lacks the growth of others trading at a similar stock value, Gerdes said.