BCEI a buy

[setliff]

Analyst Actions: Bonanza Creek Energy Shares Up as Canaccord Genuity Initiates With Buy Rating, $29 Price Target
MIDNIGHT TRADER 8:49 AM ET 6/30/2015

09:49 AM EDT, 06/30/2015 (MT Newswires) -- Bonanza Creek Energy(BCEI) shares rose Tuesday as Canaccord Genuity initiated coverage of the energy company's stock with a buy investment rating and a price target of $29 per share.

The price target implies expectations for the stock to climb some 62% from its Monday closing price. It was up 2% at $18.31 recently, in a 52-week range of $16.36 to $62.89.

In a note to clients, Canaccord Genuity said it sees Bonanza Creek Energy(BCEI) as providing "an attractive way to play the DJ Basin." Noting the company has a "fairly contiguous: position of about 70,000 net acres in the Wattenberg Field, Canaccord Genuity said Bonanza Creek Energy(BCEI) "has a sizable, high-quality asset to exploit."

The firm added: "A healthy balance sheet and liquidity profile make us confident in BCEI's ability to come through the commodity downturn in good shape."

[jb2257]

I'm happy to see an upgrade after this big drop in the stock price.

[dan_s]

BCEI is now trading at less than 4X my 2015 CFPS forecast. My valuation is $41.50.

[dan_s]

I took a hard look at Bonanza Creek this morning (7/11) and I cannot find anything specific to the company to justify the recent selloff. I have updated my forecast model and lowered the CFPS multiple I am using to value it. I have lowered my valuation $10.20/share to $31.30/share. NOTE that Canaccord Genuity recently valued it at $29/share.

That is a big drop in my valuation, but my 5X CFPS multiple is very conservative for a company with a strong balance sheet and lots of running room.

Bonanza Creek should report adjusted earnings around break-even for Q2 and cash flow from operations around $60 million. Their full year capital program is $400 million. The common stock they sold in February generated $202 million in cash, so that sale + cash flow from operations should more than cover this year's drilling program.

You can download my forecast model from the EPG website to Excel and play with the production volumes and commodity prices in the forecast periods to see how they impact the valuation. This is true for all of the forecast models on the website.