Deutsche Bank Upgrades Rice Energy (RICE) to Buy
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Deutsche Bank upgraded Rice Energy (NYSE: RICE) from Hold to Buy with a price target of $33.00 (from $30.00). Analyst Josh Silverstein sees an attractive entry.
"The past two months have proven to be a challenge for producers and the commodity alike as concerns around winter weather are peaking while pipeline delays are reducing expectations for Northeast realized prices. Add to it improving Marcellus well productivity, the re-emergence of the Haynesville (hello 30+MMcfpd IP rates), and accelerating activity across the oil focused basins, we can see plenty of reasons to question the 2016 rally. However, the non-weather demand side of the equation has also proven to be stronger, keeping us of the view that the l-t range of $3.00-3.50/mmbtu still holds, providing a better risk adjusted entry point for the equities that imply ~$2.90," said Silverstein.
"While we had remained on the sidelines at RICE due to our position on natural gas price, we consistently favored the integrated business model and appreciated management’s disciplined approach to consolidation. This was exemplified by the ~$2.7Bn Vantage acquisition, which not only improved inventory duration but also quality of inventory (lateral lengths now 8-10k ft for combined acreage vs. 6k ft previously) along with a larger midstream footprint that has created greater value, both near and long term (GP IPO a future possibility). Following the update to our S/D model, we see RICE benefiting from their short firm transport capacity position (50% of 2018 production exposed to in basin pricing) as pipelines will likely be overbuilt in the basin. The recent downward move in the stock (down 10% since Oct 1) provides a buying opportunity as we upgrade the stock from HOLD to BUY," added the analyst.
Shares of Rice Energy closed at $24.01 yesterday.
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