Monday, May 3, 2010

Quick Analysis: Linn Energy (LINE)

LINE: Linn Energy

Oil and Natural Gas Company, located in the Southern portion of the US

Recent Range: $14/share – $37/share (Current Price: 27.10, as of close of 4/30/10)

Price/Sales (P/S) = 12.34 (7.33, Industry)
Price/Book (P/B) = 1.37 (2.43)
Gross Margin = 51.1% (64.1%)
Pre-Tax Margin = -109.8% (-40.2%)
Debt/Equity Ratio = 0.65 (0.49)
Current Ratio = 2.0 (1.4)
Return on Equity = -11.4% (1.5%)
Return on Assets = -6.5% (2.4%)

Analysis: Not great…

There is not enough upside considering how speculative this stock seems to be. There is a lot of debt, sales figures are disappointing, and they seem to be banking on their new acquisitions appreciating in the near future to bail them from today’s woes.

There is some intrigue, as there are some positive signs with this company, but those do not come without sturdy risk. They have a wonderful dividend (over 9%), which they pay consistently.

Its Price/Book is good for its industry; however, it’s Price/Sales is not strong. The profit margins, or lack thereof, support that last message.

The company did acquire more assets, and these could provide excellent returns.

However, this company seems to be relying too heavily on debt to get them through what seems to be a rough period for them. Luckily, they have more short-term assets (cash) than their competitors; so that might provide them a little breathing room.

The company sold stock shares to provide this cash at $25.00/share, providing additional cash. So that will dilute any short term gains, and it should keep the stock from rising too quickly, unless their new acquisitions are more profitable than the rest of the company.

This could be a nice, dividend providing stock, but the price seems to cycle, and that price is neither high nor low right now. It’s definitely not on sale based upon today’s available information.

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