Rice Energy Inc. (RICE) Given New $30.00 Price Target at National Securities
“Rice adds to its acreage position in the Marcellus, through its acquisition of Vantage Energy. In doing so, Rice added 85,000 net acres (55% increase), along with 399 million cubic feet equivalent per day (Mmcfe/d) of production to a current base of 758 Mmcfe/d. Additionally, Rice will be assuming $700 million in Vantage Energy debt. We expect the transaction to close in 4Q16, with subsequent increases in production to be realized in 2017. The transaction will be financed in part by Rice’s 40 million share issuance (approximately a 30% increase to share count), and cash on hand. We note a 7% decline in the stock price following the announcement, which we see as an overdone kneejerk reaction. Given our expectations for subsequent increases in production and EBITDA, we would encourage investors to add to their positions in Rice, particularly at current levels. We also note that the acquisition brings with it an additional 462 net well locations, offering internal rates of return (IRR) estimates of 110%.
In our opinion, Rice’s acquisition purchase price seems more than reasonable. If viewed purely on the basis of acreage, we calculate a transaction price of $31,765 per acre. However, when taking the acquired production into account, we estimate a per acre cost is closer to $1,200 (valuing production at $6,500 per flowing Mcfe). Given precedent transactions within the Marcellus, we contend that Rice received good value for its purchase price, and expect it to be accretive to future earnings.
We reiterate our BUY rating, while increasing our price target to $30. We see the downtick in price following the announcement, as an opportunity for investors to either establish new long positions in Rice, or add to current ones. We value Rice on the basis of daily production, proved reserves, and projected EBITDA (exhibit 2). Moreover, we increase our production mark to incorporate the new acquisition. In doing so, we arrive at a price of $30 per share, implying 20% additional upside, given current prices.
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Several other analysts also recently weighed in on the stock. Johnson Rice reissued a hold rating on shares of Rice Energy in a research note on Wednesday. GMP Securities assumed coverage on shares of Rice Energy in a research note on Wednesday. They issued a buy rating and a $34.00 price target for the company. Jefferies Group reissued a buy rating and issued a $31.00 price target on shares of Rice Energy in a research note on Tuesday. Goldman Sachs Group Inc. downgraded shares of Rice Energy from a neutral rating to a not rated rating in a research note on Tuesday. Finally, Seaport Global Securities downgraded shares of Rice Energy from a buy rating to a neutral rating and boosted their price target for the stock from $26.00 to $29.00 in a research note on Tuesday, August 30th. Seven investment analysts have rated the stock with a hold rating and fourteen have given a buy rating to the stock. Rice Energy presently has an average rating of Buy and a consensus price target of $24.50.
Shares of Rice Energy (NYSE:RICE) opened at 25.25 on Wednesday. The firm’s market capitalization is $3.95 billion. The company has a 50-day moving average price of $26.47 and a 200-day moving average price of $20.86. Rice Energy has a 12-month low of $7.92 and a 12-month high of $29.36.
Rice Energy (NYSE:RICE) last posted its quarterly earnings data on Wednesday, August 3rd. The company reported ($1.07) earnings per share (EPS) for the quarter, missing analysts’ consensus estimates of ($0.06) by $1.01. Rice Energy had a positive return on equity of 1.01% and a negative net margin of 70.19%. The company had revenue of $116 million for the quarter, compared to the consensus estimate of $180.12 million. During the same period in the prior year, the firm posted $0.03 earnings per share. The business’s revenue was up 2.7% on a year-over-year basis. Equities analysts predict that Rice Energy will post $0.03 EPS for the current year.
Hedge funds have recently made changes to their positions in the company. Quadrature Capital Ltd purchased a new stake in shares of Rice Energy during the first quarter worth about $379,000. NFC Investments LLC boosted its stake in shares of Rice Energy by 15.7% in the first quarter. NFC Investments LLC now owns 339,313 shares of the company’s stock worth $4,737,000 after buying an additional 46,011 shares during the period. Spark Investment Management LLC purchased a new stake in shares of Rice Energy during the first quarter worth about $837,000. JVL Advisors L.L.C. boosted its stake in shares of Rice Energy by 9.9% in the first quarter. JVL Advisors L.L.C. now owns 2,301,529 shares of the company’s stock worth $32,129,000 after buying an additional 207,400 shares during the period. Finally, Brookfield Asset Management Inc. boosted its stake in shares of Rice Energy by 36.3% in the first quarter. Brookfield Asset Management Inc. now owns 56,370 shares of the company’s stock worth $787,000 after buying an additional 15,010 shares during the period. 95.95% of the stock is owned by hedge funds and other institutional investors.
Rice Energy Company Profile
Rice Energy Inc (Rice Energy) is an independent natural gas and oil company. The Company is engaged in the acquisition, exploration and development of natural gas, oil and natural gas liquids (NGL) properties in the Appalachian Basin. The Company conducts its operations through two segments: Exploration and Production, and Midstream.
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