The bank downgraded it from a "buy" to a "hold" in a research note circulated to investors Thursday morning, citing the fact that existing equity holders will be virtually wiped out when the oilfield services company emerges from bankruptcy.
Current equity holders will take a .5% stake in the company under a proposed reorganization plan that has the support of Basic Energy's noteholders. The noteholders stand to receive 99.5% of the stock distribution.
Basic Energy filed for Chapter 11 in Delaware on Oct. 25, pointing to the global downturn in oil prices as the root cause of its struggles.
"The reorganization will likely create a sustainable path forward for a company we see as an early cycle beneficiary," Deutsche Bank analyst Mike Urban wrote. The bank also cut its price target on the stock to 50 cents from $2.
Shares of Basic Energy were trading at 43 cents Thursday afternoon, down one cent.
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate BASIC ENERGY SERVICES INC as a Sell with a ratings score of D-. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself, deteriorating net income and feeble growth in its earnings per share.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
You can view the full analysis from the report here: BAS