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Comstock Resources (CRK) Upgraded To 'Buy' By Brean Capital, PT $24

 January 11, 2013 10:32 AM

(By Balachander) Comstock Resources Inc. (NYSE: CRK) shares were upgraded to "buy" from "hold" with a price target of $24 by Brean Capital LLC, which said the recent pullback and OXY's acquisition now make the stock an attractive buy.

Based on our research, the brokerage said OXY acquired J.C. Thompson's Permian assets, which includes 20,000 net acres and 4,000 Boe/d of production, for roughly $520 million.

CRK's Permian acreage is adjacent to OXY's new acreage and essentially has the same geology, Brean Capital said.

"We are upgrading the shares given that the implied price per acre of the OXY/Thompson deal is $15k/acre-$18k/acre versus CRK's implied market value of $4k/acre," the brokerage wrote in a note.

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Brean Capital said its initial Hold rating was based on high expectations already factored into the stock for CRK's Permian acreage, but the recent pullback and OXY's acquisition now make the stock an attractive buy.

The pushback on CRK is that the growth rates may not be as high as consensus, but capex will likely also be less than expectations which we think offsets weaker volume growth, the brokerage said.

Comstock Resources announced that it plans to spend $420 million in 2013 for development and exploration activities, which Brean Capital said is below its initial estimate of about $470 million.

Brean Capital cut its 2013 estimates based on the lower-than-expected capex budget. The brokerage lowered its oil production estimate to 9.5 MBbls/d (from 10.7 MBbls/d) and maintained gas production estimate of 168 MMcf/d.

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"The lower oil estimate reduced our total production estimate to 225 MMcfe/d (from 232.3 MMcfe/d). Consequently, our 2013 EPS estimate is lowered to -$0.08 (from $0.19)," the brokerage said.

The stock, which has been trading in the 52-week range of $11.05 to $21.16, rose 1.72 percent to trade at $14.79 on Friday.



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