NEW YORK (TheStreet) -- Shares of Magnum Hunter Resources Corp. (MHR) are up 7.81% to $2.07 with Brent crude futures moving above $49 on Tuesday as a weaker dollar offset the impact of a global supply glut and traders questioned if the nearly 60% price fall since June has run its course, Reuters reports.
Brent futures were trading up 2.43% to $49.33 at 12:47 p.m. in New York. U.S. West Texas Intermediate crude futures were up 2.46% to $46.26 a barrel.
OPEC Secretary-General Abdullah al-Badri said on Monday that oil prices may have reached a floor and warned of a spike to $200 a barrel if investment in new supply capacity was too low, Reuters said.
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Separately, Credit Suisse recently downgraded the Magnum Hunter Resources to "neutral" from "outperform" and lowered its price target to $3 from $7.
"While MHR has assembled a fantastic portfolio of low-cost gas and liquids assets in the Marcellus and Utica, operational challenges, coupled with current leverage and liquidity, pose challenges for the company as northeast gas supply growth has already put pressure on regional pricing," Credit Suisse said.
During the fourth quarter, Magnum Hunter reported that nearly 50% of its production was shut during the month of October, a number that steadily declined towards the end of December, analysts said.
Because operational difficulties hampered production during the first half of the quarter, analysts expect to see production relatively flat compared to the third quarter, and do not expect the company to achieve its previously stated exit rate of 32.5 Mboe/d.
TheStreet Ratings team rates MAGNUM HUNTER RESOURCES CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate MAGNUM HUNTER RESOURCES CORP (MHR) a SELL. This is driven by some concerns, 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 generally high debt management risk, disappointing return on equity, weak operating cash flow, poor profit margins and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Currently the debt-to-equity ratio of 1.58 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.36, which clearly demonstrates the inability to cover short-term cash needs.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, MAGNUM HUNTER RESOURCES CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$5.19 million or 197.42% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for MAGNUM HUNTER RESOURCES CORP is rather low; currently it is at 21.75%. Regardless of MHR's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, MHR's net profit margin of -151.47% significantly underperformed when compared to the industry average.
- MHR's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 81.10%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: MHR Ratings Report