Why LINN Energy's Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Both LinnCo (UNKNOWN: LNCO.DL  ) and LINN Energy (NASDAQOTH: LINEQ  ) jumped 10% today on a positive analyst report.

So what: Analysts at Bank of America Merrill Lynch released a report that said they don't think LINN Energy has inflated or distorted cash flow because of accounting practices. The company has been under pressure after Barron's and research firm Hedgeye Risk Management questioned the practice of capitalizing put contracts, which affect non-GAAP metrics and potentially the dividends the company pays.  

Now what: This doesn't affect the informal investigation by the SEC, but it may give investors a little confidence that the company will be able to maintain its dividend. LINN Energy's 13.1% dividend yield and LinnCo's 11.6% yield both are big reasons why investors buy the companies' stocks, so if those payouts are in question it could be a huge hit. I don't see today's revelations as a sign to buy but they should help make long-term investors a little more comfortable with their dividends, because those don't appear to be in question just yet.

Interested in more info on Linn Energy? Add it to your watchlist by clicking here.

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  • Report this Comment On July 13, 2013, at 3:59 PM, SkepikI wrote:

    Given their history, I am not at all sure the opinion of BoA or ML should give anyone much comfort. This practice of capitalizing what is essentially a price hedging instrument (if I understand the situation properly) bears some uncomfortable resemblance to the strategies ENRON was employing on risky developments near the end. All this sort of complicating, leveraging and murky treatment of a business should set off suspicions at MF. That it apparently has not and set one analyst to recommending LINE (which is why I bothered to read this) is troubling.

    Clever and elegant accounting treatments and novel theories about how to treat assets and expenses are all well and good, perhaps even marginally profitable. But all too often these intentional complexities hide inconvenient facts or even malevolent intent.

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Related Tickers

9/26/2016 3:56 PM
LINEQ $0.05 Down +0.00 -1.80%
Linn Energy, LLC CAPS Rating: **
LNCO.DL $0.05 Down +0.00 -3.88%
Linn Co, LLC CAPS Rating: ***