NEW YORK (TheStreet) -- Shares of EXCO Resources (XCO) were gaining 8.7% to $1.99 Wednesday after the oil company announced a new services and investment agreement with Bluescape Resources.

Under the new agreement EXCO will name Bluescape Executive Chairman C. John Wilder to its board of directors as executive chairman. EXCO President and COO Harold L. Hickey will become the CEO and president of EXCO as part of the agreement.

"We believe EXCO has significant potential by uniting EXCO's strong operating capabilities with Bluescape Resources Company LLC's proven commercial and turnaround track record," Wilder said in a statement.

Bluescape said it will purchase 5,882,353 shares of EXCO at $1.70 for a total of $10 million as part of the agreement. Bluescape will also purchase $40 million of EXCO common stock in the open market within a year of the closing of the deal.

TheStreet Ratings team rates EXCO RESOURCES INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate EXCO RESOURCES INC (XCO) a SELL. This is driven by a number of negative factors, 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, weak operating cash flow 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 2.84 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, XCO has a quick ratio of 0.62, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has significantly decreased to $3.73 million or 97.07% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • XCO'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 61.87%, 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. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • EXCO RESOURCES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, EXCO RESOURCES INC increased its bottom line by earning $0.44 versus $0.11 in the prior year. For the next year, the market is expecting a contraction of 161.4% in earnings (-$0.27 versus $0.44).
  • XCO, with its decline in revenue, slightly underperformed the industry average of 19.9%. Since the same quarter one year prior, revenues fell by 29.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • You can view the full analysis from the report here: XCO Ratings Report
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