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Comstock Resources (CRK) Upgraded To 'Outperform' By BMO Capital

 February 19, 2013 02:40 PM

(By Balachander) Comstock Resources Inc. (NYSE: CRK) shares were upgraded to "Outperform" from "Market Perform" by BMO Capital.

The brokerage believes current trading levels present a favorable risk/reward at which to gain exposure to early-stage exploration efforts targeting the Wolfcamp resource in Reeves County, TX, where the company retains 42k net acres and where larger producers can be found.

"We see a firmer backstop on valuation today to make the recommendation investors step out on the risk curve. Frankly, this call is grounded in the results of one well," BMO wrote in a note.

[Related -Dividend Roundup: COHU, CRK, DDR, M, NOC, PPL, YUM]

Here, the brokerage wrote it is referring to the company's GauchoState 15 1H targeting the Wolfcamp "A" and drilled with an extended lateral length of 6,800' (18 stages). The well is flowing back now. Results expected near term. "Potential valuation driver for the shares, in our view," BMO said.

The brokerage said attempts by the company to date have been mixed. Only two wells completed, one good (first well targeting the Wolfcamp "B"), one bad (second well targeting the Middle Wolfcamp).

"The leap here is that the company can demonstrate the second attempt was an outlier and that targeting the "right" zone (i.e., Wolfcamp "A", like what others complete) can produce economic and repeatable results," BMO said.

"Our $17 target price is grounded in an NAV analysis that yields $17 on the BMOCM price deck and $22 at NYMEX strip pricing," BMO said.

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Frisco, Texas-based Comstock is an independent energy company engaged in oil and gas acquisitions, exploration and development primarily in Louisiana and Texas. 

The stock, which has been trading in the 52-week range of $12.56 to $21.16, added 0.80 percent to trade at $13.83 on Tuesday.



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