Jefferies Lowers Price Target on Broncho Drilling (BRNC)

Jefferies & Company is out with a research report this morning, where it reiterates its Hold rating on Broncho Drilling BRNC; it also lowered its price target to $4.50, from $5.00. The Jefferies analysts cited the company’s recent earnings report, which was slightly below estimates as lower revenues, other income items and a lower tax rate shield more than offset higher margins/rigs per day. The analysts did increase their estimates on the name, though, with 2010 EPS going to a loss of $0.68, from a loss of $0.89. As for 2011 EPS, it is now a loss of $0.12, from a loss of $0.57. The analysts noted that land rig rates are continuing to increase and that dayrates on upgraded rigs are also getting "pulled up" just below replacement cost levels due to the “lack of equipment in basins like the Bakken and Marcellus.” As for valuation, the Jefferies analysts remarked, “BRNC trades at 5.0x our 2011 TEV/EBITDA, a premium to its other land rig peers that trade at 4.5x. We are lowering our 12-mo PT to $4.50 from $5 based on approx. 5.5x our revised 2011 TEV/EBITDA, which takes into account multiple compression for the group on 2011 estimates and is roughly in line with the PT multiple we have applied to BRNC's small cap peers.”