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Business Profile Linn Energy is an independent oil and gas company that engages in the acquisition and development of oil and gas properties primarily in the mid-continent (Texas, Kansas and Oklahoma), the Permian Basin, the Williston Basin and properties in Michigan and California. Its assets are heavily weighted toward natural gas, though Linn is seeking oil properties to provide balance to its energy portfolio of 7,700 wells and 4.2 trillion cubic feet of natural gas and oil reserves. Linn’s assets have long reserve lives that almost ensure stable quarterly distributions and reduce management’s need to frequently replace properties due to natural decline in inventory.
Wall Street’s View Linn Energy , with a $2.90 dividend yielding 7.7 %, is getting a lot of attention, and 14 of Wall Street’s sages have it on their “buy” scopes. Linn is also getting press from quite a few investment services that have boarded the bandwagon. Most are trumpeting a potential 12-month price target of $45, predicting 20 % higher revenues to $2.5 billion, a 30 % growth in profits to $2.36 a share and a possible $3.30 dividend in 2013. Considering that natural gas is trading at its lowest level in years, these numbers could be conservative. And if the price of natural gas rises, as many believe it soon will, Linn’s dividend is likely to move much higher.
SWOT Analysis • Strengths • Diversified, long-life and high-quality oil and natural gas reserve base that almost ensure stable quarterly distributions. • Large inventory of lower-risk oil and natural gas development opportunities. • Industry-leading hedge position which almost guarantees cash flow. Current expected natural gas production hedged approximately 100% through 2017. Current expected oil production hedged approximately 100% through 2016 • If the price of either commodity spikes dramatically, Linn's strategy forgoes some upside, but limits its downside risk considerably and thus gives investors a secure outlook on return.
2. Weakness • The company has taken on some large amount of debt, about $6 billion is long term debt. Its debt to equity ratio is highest among its peers. • It has the least current ratio among it peers, which signifies that the ability of the company to pay its short term liabilities. • Its three year stock return are also lowest among its peers. Though the return has been pretty high, it is low as compared to the sector. • Low oil and gas prices has been putting pressure on its cash flows
3. Opportunities • The weaknesses in the global economy and commodity prices are forcing a record number of assets onto the market, and Linn is perfectly positioned to buy with a hedge book and access to capital that others don't have. • A large number of acquisitions and partnerships with other companies like BP and Anadarko Petroleum to acquire mature oil and gas assets have been concluded recently. • Upcoming Shale gas assets have a lot of potential for future growth.
4. Threats • The company has lowest Cash and short term investments amongst its peers which could mean low liquidity to pay back its creditors. • High debt levels especially long term debt can hurt companies future profitability. • Due to its large hedging positions, the company can loose significant investor as compared to its peers if oil and gas prices move upwards sharply.
LINN Total Returns Comparison Here are Linn Energy's total returns compared to the market and some of its peers. High historical total returns are excellent - especially if you held the stock at the time - but returns can change direction quickly. To predict future performance, looking at the business is more important than looking at historic returns.
