Why Swift Energy Company Shares Could Stall at $11

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 Swift Energy  (NYSE: SFY  ) slipped 2% on Friday after Wells Fargo downgraded the oil and gas producer from outperform to market perform.

So what: Along with the downgrade, analyst David Tameron lowered his valuation range to $11-$13 (from $14-$17), with the midpoint representing just 8% worth of upside to yesterday's close. So while contrarian traders might be attracted to Swift's year-to-date price sluggishness, Tameron's call could reflect a sense on Wall Street that the risks surrounding the company's restructuring efforts are likely to keep pressuring the stock.

Now what: According to Wells, Swift's risk/reward trade-off isn't too appealing at this point. "The company delivered on its Eagle Ford JV earlier this year, but in our view, additional asset sales are needed to de-lever the balance sheet and provide flexibility in 2015," said Tameron. "While the company has its CLATEX assets on the market, continued delays and a disjointed package of assets leave us thinking that either the deal won't get done, or only parts of it will." Of course, with Swift shares now off about 30% from their 52-week high and sporting a price-to-book ratio of 0.5, the downside might be limited enough to bet on management's ability to unlock more value. 

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  • Report this Comment On June 19, 2014, at 1:56 PM, Ventureshadow wrote:

    Could this, could that, saying could is far from taking a stand on an issue such as saying "we expect," "we believe," or "will probably." Here this essay was written while SFY was breaking out and is now over $12.

    Writing at the same time, Zacks took a stand. They advised "buy" and not to bet against it.

    I'd like to see some direct discussion such as Motley criticizing Zacks' statements, and Zacks criticizing Motley's.

  • Report this Comment On June 21, 2014, at 12:35 PM, Ventureshadow wrote:

    The stock price just jumped above $13./share. Does Motley wish to add something to their comments about the rapid divergence between their predictions and what actually happened.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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