NEW YORK (TheStreet) -- SandRidge Energy (SD) shares are falling 7.14% to $1.24 in trading on Friday after the company's credit rating was reduced to CCC+ from B by Standard & Poor's Ratings Services following the company's debt-share swap.
The Oklahoma City-based oil and gas company said in a regulatory filing that it is exchanging stock with a single shareholder for a combined $50 million of its 7.5 percent notes maturing in March 2021 and its 8.125 percent notes due in October 2022.
Analysts at the ratings agency said that they will officially determine whether the swap is distressed once the deal closes, however, they warned that even if this swap is not distressed future swaps may be which led to the ratings downgrade, according to Bloomberg.
TheStreet Ratings team rates SANDRIDGE ENERGY INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate SANDRIDGE ENERGY INC (SD) a SELL. 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 deteriorating net income, generally high debt management risk, disappointing return on equity, 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 company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 659.1% when compared to the same quarter one year ago, falling from -$136.34 million to -$1,034.95 million.
- The debt-to-equity ratio is very high at 3.76 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, SD has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity 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, SANDRIDGE ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has declined marginally to $90.10 million or 0.39% when compared to the same quarter last year. Despite a decrease in cash flow of 0.39%, SANDRIDGE ENERGY INC is still significantly exceeding the industry average of -51.31%.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 75.79%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 606.45% compared to the year-earlier 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: SD Ratings Report