Thursday, FBR Capital Markets initiated coverage of Resolute Energy Corp. (REN) stock with an Outperform rating and a price target of $15.
Analyst Rehan Rashid said that his rating reflects management's strong track record in creating shareholder value and the fact that operationally, any incremental recovery beyond 34% of the original oil in place in Aneth could yield 50 MMboe of net potential atop 49.5 MMboe booked at year-end 2008 (at 40% recovery).
The analyst noted that Resolute, with a strong balance sheet, is positioned ideally to benefit from current industry merger and acquisition dynamics and could acquire properties in the range of $50 million to $500 million, relative to its $600 million market capitalization.
The brokerage added that Resolute can increase production by a 10% compound annual growth rate through 2014 with only $60 million capital deployed per year (within cash flow) and realize operating margins above $25/bbl based on its $65/bbl West Texas Intermediate reference price.
FBR said that 63% of 2010 oil production is fixed at $67/bbl, and 50% of 2011 production is fixed at $68/bbl. Based on the brokerage's estimates, Resolute can generate $53 million of free cash flow net of capex (2009 through 2012) and fully pay down the credit facility by year-end 2012.
Currently, REN is up $0.30 or 2.79% and trading at $11.06.
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