Bear cuts UCL on price -
MarketCap: $9.4 Billion Index: NYSE Composite, S&P 500, Russell 1000
Frederick P. Leuffer, CFA - Integrated Oils
We downgraded UCL to Neutral from Buy based on valuation — the stock has reached our target price. Although we believe UCL's operating and financial outlook is positive, and continued strength in natural gas prices and exploration success could support UCL’ s stock near term, we believe upside potential is limited. Our outlook for a material decline in oil and gas prices in 2001 suggests that investment timeliness is poor. In the past, we have regarded UCL as an attractive takeover candidate. Recent management changes and the current valuation make it unlikely that an acquisition would occur at a significant premium. We have increased our 2000 earnings and cash flow estimates by $0.10/share, respectively, owing to higher than expected natural gas realizations in the U.S. We estimate UCL's Q4 average U.S. gas realization at $5.45/mcf, up from $4.26/mcf in Q3. Q4 results, expected will be affected by exploration results from two deepwater Gulf of Mexico exploration wells. The first well, Timon, has been widely reported as a disappointment. A poor showing at Timon could negatively influence development plans at K2. Net costs could total $27 million including past drilling expenses. The second well, Dana Point, is expected to be complete in the next week to 10 days. This well is likely to cost at least $20 million net to UCL. If these two wells are dry, earnings could be penalized by $0.08/share. UCL also is drilling the Chi Chi prospect on the Gulf of Mexico shelf. Well costs are expected
to total $6-$7 million.
Bear Stearns: 12/00E $3.25 from $3.15; Q4 $1.07 from $0.97 12/01E $2.25
Consensus: 12/00E $3.19; Q4 $1.01 12/01E $2.96 Consensus Rating: 2.0 (Last Updated 12/29 ) |
