NEW YORK (TheStreet) -- Halcon Resources (HK - Get Report) was falling -2.5% to $6.24 Monday on news that Apollo Global Management (APO) will invest up to $400 million in a subsidiary that will hold all of its 314,000 acres in the Tuscaloosa Marine Shale in Louisiana and Mississippi.
Apollo will contribute $150 million for 150,000 preferred shares of the subsidiary with an option to buy an additional 250,000 additional shares. Apollo will receive up to 4% overriding royalty interest from 75 wells that will be drilled in the area.
Halcon said the Horeshoe Hill 11-22-H-1 well had an initial daily production rate of 1,208 bbl of oil and 1.1 million cf of natural gas. The company plans to start drilling 10 to 12 wells in the Tuscaloosa Marine Shale, and expects to participate in 15 to 20 non-operated wells.
TheStreet Ratings team rates HALCON RESOURCES CORP as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate HALCON RESOURCES CORP (HK) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 44.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has significantly increased by 188.53% to $159.50 million when compared to the same quarter last year. In addition, HALCON RESOURCES CORP has also vastly surpassed the industry average cash flow growth rate of 17.43%.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- The debt-to-equity ratio is very high at 2.56 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.46, which clearly demonstrates the inability to cover short-term cash needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, HALCON RESOURCES CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: HK Ratings Report