Imperial Sees 50% Downside In Stone Energy

Stone Energy Corporation SGY had announced on April 14, 2016 that banks had severely cut its borrowing base. Imperial Capital’s Kim Pacanovsky downgraded the rating for the company from In-Line to Underperform, while reducing the price target from $1.25 to $0.50. The analyst mentioned that following the massive shrinking of its borrowing base, Stone Energy had “little hope for a recovery,” apart from there being a quick and large rebound in crude pricing.

Lack Of Liquidity

The revised price target reflects downside of about 50 percent from the recent share price. The company’s borrowing base has been reduced by $200mn to $300mn. In anticipation of the cut, Stone Energy had on March 10 already borrowed the entire funds available on its former borrowing base.

Therefore, the company’s borrowings now exceed the new base by $175mn. “After paying down the overage, incorporating an $18.3mn Letter of Credit, an $11.8mn building loan, and addressing the 2017 maturity, we estimate that the company will be left with $53mn of liquidity,” analyst Kim Pacanovsky wrote.

Estimates Reduced

The natural gas price deck for 2016 has been reduced to $2.16/mcf. Consequently, the EPS and EBITDA estimates for 2016 have been reduced from ($2.71) to ($2.90) and from $158.1mn to $147.8mn, respectively.

The deck for 2017 has been lowered to $2.80/mcf for natural gas and to $62/bbl for crude oil. Therefore, the EPS and EBITDA estimates for 2017 have been reduced from $0.48 to $0.02 and from $354.7mn to $312.5mn, respectively.