The analyst firm downgraded the oil company to "sector perform" from "outperform" in a note to investors. RBC analysts also lowered their price target for Linn Energy to $5 from $15.
About 3.9 million shares of Linn Energy were traded by 9:49 a.m. Monday, compared to the company's average trading volume of about 3.8 million shares a day.
The downgrade and price target cut follow Linn Energy's Thursday announcement that it will suspend its distribution later this year.
"After careful consideration, management has decided to recommend to the board of directors that it suspend payment of LINN's distribution and LinnCo's LNCO dividend at the end of the third quarter 2015 and reserve approximately $450 million in cash from annualized distributions," Chairman, President, and CEO Mark E. Ellis said in a statement Thursday morning.
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 a few notable 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 unimpressive growth in net income, generally high debt management risk, disappointing return on equity, poor profit margins and weak operating cash flow."
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 82.4% when compared to the same quarter one year ago, falling from -$207.87 million to -$379.13 million.
- The debt-to-equity ratio is very high at 2.67 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 0.42, which clearly demonstrates the inability to cover short-term cash needs.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. 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 rather low; currently it is at 18.08%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -117.80% is significantly below that of the industry average.
- Net operating cash flow has decreased to $298.78 million or 37.90% when compared to the same quarter last year. Despite a decrease in cash flow LINN ENERGY LLC is still fairing well by exceeding its industry average cash flow growth rate of -48.80%.
- You can view the full analysis from the report here: LINE Ratings Report