Big Yield on Hold-Rated PVR
Penn Virginia Resource Partners, L.P. (PVR) released fourth quarter earnings of $0.07 per unit on revenue of $151 MM. Netting out the non-cash impact of derivative valuations, earnings would have been $0.52 per limited unit. PVR had record operating performance in Q4, mainly attributable to heady frac margins from its midstream gas segment. The combination of lower royalties per ton on flat production in 2008 coupled with the volatile nature of frac spreads will keep PVR's yield trading at a discount to its peers and will additionally inhibit its distribution growth.
Currently, the partnership's unit yield has a spread of 250 basis points (2.5%) above current 10-year Treasury bonds. With our forward estimate of a 4.2% yield on a 10-year Treasury bond in one year, plus our estimated 250 basis point spread over the 10-year T-bond, our forecasted yield for 2008 should come in around 6.7%.
Our belief is that the partnership will be able to increase its per unit cash distribution by one penny each quarter based on our estimated distributable cash flow for 2008. This would give Penn Virginia Resource Partners an annualized distribution of $1.92 per unit, or an increase of 11.6% over 2007. Dividing this by our 6.7% yield estimate gives us a 12-month target price for PVR of $29 per unit. Our rating of Hold remains unchanged.
Delays at Xtent Keep It a Hold
Xtent, Inc.'s (XTNT) Q4 loss per share beat our estimate on lower expenses, reflecting some timing issues. However, CUSTOM IV trial enrollment is still delayed as the company has not been able to gain IDE clearance from the FDA. We are adjusting our near-term estimates to reflect Xtent's increased clinical and commercialization support. We are reducing our longer-term revenue and EPS projections given some slippage in expected U.S. approval timeline.
The company's fourth quarter loss beat our loss estimate on lower-than-expected expenses in the quarter, reflecting some timing issues. The company remains on track with its expectation of commercializing in Europe by 2H08, filing its CE Mark application in December. However, the U.S. pivotal CUSTOM IV trial enrollment is still delayed somewhat as the company has not been able to gain expected IDE clearance from the FDA.
We are adjusting our near-term estimates to reflect Xtent's increased support of its clinical studies and European commercialization efforts and slippage in CE mark approval this year. We are also reducing our longer-term revenue projections given some slippage in expected U.S. approval timeline as well as reducing EPS given expected cash needs and increased share count.
While XTNT continues to make progress and has several catalysts this year, given the timeline and trial data risks in the story we believe the stock is fairly valued at 40x our reduced 2011 EPS estimate of $0.45, discounted 25%, or approximately $9.50. We maintain a Hold rating.
Staying Neutral on PG&E Corp.
Going forward, as PG&E Corporation (PCG) continues to focus primarily on regulated utility operations and increased revenue from the 2007 General Rate Case (GRC), positive investment factors including an 11.35% authorized ROE, increasing financial liquidity, long-term supply agreements, diversification into alternative power sources and an increased dividend.
