Why Ion Geophysical Corp Slumped on Wednesday

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Ion Geophysical Corp (NYSE: IO  ) sank 6% on Wednesday after Barclays downgraded the geophysical technology company from overweight to equalweight.

So what: Along with the downgrade, analyst James West lowered his price target to $4 from $5, representing about 7% worth of downside to yesterday's close. So while momentum traders might be attracted to the stock's sharp bounce in recent months, West's call suggests growing sentiment on Wall Street that investors have gotten ahead of themselves. 

Now what: According to Barclays, Ion's risk/reward trade-off is pretty balanced at this point. According to West:

Seismic spending is expected to grow in the low single digits this year, well below our expectations for worldwide E&P spending growth of around 6%. We continue to believe IO is well positioned for exploration in various frontier basins, notably the Arctic, as well as a recovery in seismic activity once exploration sentiment improves. However, at this time we see better value elsewhere in our coverage universe (including the large diversified service companies and SMID cap NAM players).

When you couple that bearish outlook with Ion's still-hefty debt load and highly volatile shares, it's tough to disagree with Barclays' cautious stance. 

More compelling energy picks
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays, while historic amounts of capital expenditures are flooding the industry, will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2881994, ~/Articles/ArticleHandler.aspx, 10/23/2014 4:46:12 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement