Wunderlich Upgrades LRR Energy, Says It's A Good Way To Own Vanguard Natural Resources

In a report published Monday, Wunderlich analyst James L. Dobson upgraded the rating on LRR Energy LP LRE from Hold to Buy, while raising the price target from $8 to $9. The company's board has approved the merger with Vanguard Natural Resources, LLC VNR. Each LRR Energy share is to be exchanged for 0.55 Vanguard shares as part of the transaction. The analyst believes that the risks to the transaction are low and that the merger would close in 3Q15, following a vote by LRR Energy's shareholders. "Furthermore, investors will receive at least one last distribution in August from LRE before the merger closes. LRE's distribution yield is slightly higher than VNR's at 9.8 percent," Dobson said. LRR Energy's production assets complement Vanguard's production base. In addition, the former's lower leverage will help bring down the consolidated entity's leverage metrics. Given that 30 percent of LRR Energy's units are held by Lime Rock Management, a simple majority in a shareholder vote is needed for the merger to be approved. "Given Lime Rock's support for the merger and the prospects for the combined entity, we are optimistic that the merger will close by September," the Wunderlich report stated.