FBR Capital Takes Conservative Approach to Vanguard Natural Resources' (VNR) Distribution Policy; Cuts Price Target to $10

FBR Capital reiterated an Outperform rating on Vanguard Natural Resources (NASDAQ: VNR), and cut the price target to $10.00 (from $17.00), on a more conservative approach to forecasts for distribution policy. VNR should be able to support its current distribution through 2016. Following VNR’s fall borrowing base redetermination the facility was reaffirmed at $1.8 billion. However, the company has $1.69 million drawn, resulting in a lessthan-comfortable 94% utilization and liquidity of $105 million.

Analyst Chad Mabry commented, "We are lowering our price target on units of Vanguard Natural Resources to $10 (from $17) on a more conservative approach to our forecast for distribution policy. As we have seen from the latest round of borrowing base redeterminations, companies are coming under pressure to put a premium on preservation of liquidity over distribution stability. While we believe that VNR has the ability to maintain its current distribution of $1.41/year—we forecast coverage of >1x through 2016— we are nonetheless reducing our expectations for the payout as the partnership’s decision appears likely to be driven by balance sheet stability. We are lowering our distribution forecast by 40% to $0.84/unit for 2016, which causes our DDM-based price target to decline to $10. VNR has been one of our conviction ideas in the upstream MLP sector, and we continue to believe that the company outperforms peers through this challenging commodity price environment."

For an analyst ratings summary and ratings history on Vanguard Natural Resources click here. For more ratings news on Vanguard Natural Resources click here.

Shares of Vanguard Natural Resources closed at $5.60 yesterday.

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