KLR Group Upgrades Energen (EGN) to Buy; Sees Significant Growth Ahead
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KLR Group upgraded Energen (NYSE: EGN) from Accumulate to Buy with a price target of $73.00 (from $69.00), saying significant growth is on the horizon.
Analyst Gail Nicholson commented, "We are upgrading EGN from Accumulate to Buy and increasing our target price $4 to $73 due to a ~2.5% improvement in our capital productivity assumption, a ~5% increase to our '17 growth expectation, and a ~5% decrease in cash operating expenses.
EGN generates a '18 capital yield (cash recycle ratio) of 165%+, up from ~160% previously, and above the group median of ~130%. The company trades at a premium to its oil-dominant peer group on '17 EV/EBITDA (~8.7x vs. ~7.7x), although its production CAGR ('16-'18) of ~20% is ~1.3x higher. EGN has a strong balance sheet with a '17 net-debt-to-EBITDA ratio of ~0.9x and has improved its organic capital intensity by ~20%. The stock has several potential catalysts ahead including the continued performance from its upsized fracs (company plans to utilized Gen 3 fracs in '17 although the uplift is not accounted for in its production guide) and its balance sheet (undrawn $1.05 billion borrowing base and $350+ million in cash at YE'16) that allows the company flexibility to either further accelerate activity or take advantage of potential acquisitions."
Shares of Energen closed at $50.66 yesterday.
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