Thursday, KeyBanc Capital initiated coverage of Berry Petroleum Co. (BRY) stock with a Buy rating and a price target of $26. The brokerage established its 2009 EPS estimate of $1.22, and its 2010 estimate of $1.66.
Analyst Jack Aydin noted that Berry Petroleum is a small cap E&P Company with a focus on long-lived, heavy oil in California, natural gas in the Piceance and Uinta Basins of the Rockies, and natural gas in East Texas. The company's heavy oil assets generate a steady free cash flow stream allowing BRY to internally finance growth prospects such as the Diatomite heavy oil asset and East Texas natural gas play.
Over the past six months, the company has significantly improved its liquidity position through asset divestitures and debt restructuring. BRY's liquidity under its credit facility has increased to about $407 million vs. $63 million as of September 30, 2008, and the analyst calculates the current long-term debt-to-total capitalization at 56.7% vs. 65.0% as of September 30, 2008.
The analyst said that the differential for BRY's heavy oil has improved from a high of $14.71/Bbl in December 2008 to an average of $7.61 during June 2009, while operating and steam costs are projected to decrease by 24% and 46% year-over-year, respectively.
The analyst also thinks the current production guidance could be conservative given the recent 32% increase in the development budget from $100 million to $132 million. The analyst believes the company's improved balance sheet, free cash flow, reserve upside potential and reasonable valuation are all catalysts supporting his Buy rating and a price target of $26.00 per share.
Currently, BRY is up $0.91 or 5.44% and trading at $17.65.
For comments and feedback: editorial@rttnews.com