Wells Fargo Downgrades Eagle Rock Energy (EROC) to Market Perform

February 28, 2014 8:26 AM EST
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Wells Fargo downgraded Eagle Rock Energy (NASDAQ: EROC) from Outperform to Market Perform with a price target of $5-$6 (from $7-$8).

Analyst Praneeth Satish said, "EROC reported Q4 DCF results below our already conservative expectations (we lowered our estimates for the quarter on 2/26/14). While a significant portion of the shortfall (relative to our original forecast) was attributable to weather-related disruptions, the remainder of the variance was attributable to higher operating expenses, rising maintenance capex, and higher interest expense."

"Although we continue to expect EROC’s balance sheet to improve meaningfully following its transaction with RGP and the partnership to re-lever its balance sheet with a debt-financed acquisition, we now anticipate accretion from this acquisition would be used to bring EROC's coverage ratio back to approximately 1.0x rather than support a distribution increase (i.e. our prior thesis). Consequently, as a low-to-no growth, natural gas-focused upstream MLP, we believe EROC could trade at an 11.5% yield (implies a valuation of approximately $5.20 per unit). We are lowering our valuation range for EROC by $2 to $5-6 per unit and our 2014 DCF per unit estimate to $0.59 from $0.61," he added.

For an analyst ratings summary and ratings history on Eagle Rock Energy click here. For more ratings news on Eagle Rock Energy click here.

Shares of Eagle Rock Energy closed at $5.08 yesterday.

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