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KLR Group downgraded Unit Corp. (NYSE: UNT) from Accumulate to Hold with and maintained a $20 price target.
Analyst John Gerdes commented, "We are downgrading UNT from Accumulate to Hold. Our UNT target price is unchanged at $20 per share. Unit’s mid-cycle E&P capital yield is ~95% versus the industry median cash recycle ratio of ~135%. UNT has appreciated ~20% in past month and now approximates our target price thus requiring a downgrade to Hold.
Our ’16 production decline expectation of ~14% is in the upper half of company guidance (13%-16%). average rig fleet utilization should decrease to ~19%, while average dayrates decline ~$1,370 to ~$17,985/day (~25% drilling margin). The company has nine rigs under long-term contract (six months to two years). One contract is up for renewal in 4Q/16, seven contacts in ’17 and one contract in ’18. All eight BOSS rigs are under contract with third parties. Unit is constructing a ninth BOSS rig with plans to deliver the rig to a Permian Basin operator in early ’17."
Shares of Unit Corp. closed at $21.04 yesterday.
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