NEW YORK (TheStreet) -- Shares of LINN Energy (LINE) are falling, down 1.66% to $9.67 in early market trading, after the company had its rating lowered to "neutral" from "outperform" by analysts at RW Baird Tuesday morning, given the recent collapse in crude oil prices.
Analysts at the firm also cut its price target to $10 from $21 on shares of the independent oil and natural gas company.
The firm believes upstream MLPs will be forced to cut distributions based on when debt covenants are tripped if oil prices remain low.
Baird analysts expect the new oil paradigm to last for the foreseeable future.
Separately, TheStreet Ratings team rates LINN ENERGY LLC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate LINN ENERGY LLC (LINE) 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, poor profit margins and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is very high at 2.50 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 0.24, 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, LINN ENERGY LLC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for LINN ENERGY LLC is currently lower than what is desirable, coming in at 34.04%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -0.28% trails that of the industry average.
- LINE'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 55.59%, 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.
- LINN ENERGY LLC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LINN ENERGY LLC reported poor results of -$2.78 versus -$1.86 in the prior year. This year, the market expects an improvement in earnings ($1.48 versus -$2.78).
- You can view the full analysis from the report here: LINE Ratings Report