Rodman & Renshaw Sets New Buy Rating On Abraxas Petroleum

Rodman & Renshaw has started coverage of Abraxas Petroleum Corp. AXAS with a Buy rating and $3 price target on potential upside from Delaware Basin and Austin Chalk.

In Ward County, Texas, Abraxas is now pursuing Wolfcamp and Bone Spring activity, at depths shallower than longtime Montoya and Devonian gas targets.

Further, the brokerage noted that Austin Chalk could be a compelling catalyst, if successful. Austin Chalk is atop the company’s Eagle Ford Shale play in Atascosa County, Texas.

“Reflecting the company’s skillful navigation of a challenging commodity price environment, Abraxas has exhibited a positive per-share volume growth trend over the past three years (with CAGRs of 8 percent and 7 percent for reserves and production, respectively), which cannot be said of all E&Ps,” analyst Noel Parks wrote in a note.

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Parks expects the company to exit 2016 with production 38 percent higher than EOY 2015, reflecting resumed Bakken completions.

The analyst attributed Abraxas’ lowest F&D metrics in its peer group to portfolio rationalization and care with the balance sheet over the past three years.

“AXAS's current price is not much above our NAV for the company's proved reserves alone (which is $1.32 per share), essentially giving investors the Austin Chalk and Delaware Basin upside for free,” Parks continued.

On the valuation front, the analyst said the shares lag the 94 percent rise of its multi-play peers and trades at a pronounced CF discount to them at 4.7x 2017 EV/CF vs. 10.7x for the group.

“We believe that solid and repeatable results in either of the new plays could close the gap with peers in short order, potentially proving our price target conservative,” Parks added.

At last check, Abraxas was up 5.03 percent at $1.88.

Full ratings data available on Benzinga Pro.