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Why Baytex Energy Is Tumbling Today

By Matthew DiLallo - Updated Apr 21, 2019 at 11:37PM

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Several things are putting pressure on the Canadian oil stock.

What happened

Shares of Baytex Energy ( BTEG.F -5.33% ) sold off more than 10% by 10:45 a.m. EST on Monday. Driving the Canadian oil company's stock slump was a sell-off in the oil market as well as a couple of analyst downgrades.

So what

Crude prices continued their wild ride today. After plunging 40% over the final three months of 2018, oil quietly came roaring back in 2019 as it bounced more than 20% from that bottom. Today, though, oil is giving back some of its recent gains, falling more than 3% in mid-morning trading. The main culprit is a renewed fear of a global economic slowdown. That's after the International Monetary Fund lowered its forecast for global economic growth this year due to the trade war between the U.S. and China, with the latter recently reporting that its economy expanded at its slowest pace since 1990.

Pump jack backlit by the setting sun after the rain.

Image source: Getty Images.

That sell-off in the oil market put pressure on most oil stocks. However, Baytex Energy is more sensitive to changes in crude prices because it has a weaker financial profile due to its heavy debt load. It's also worth noting that today's decline took the U.S. oil benchmark below $52 a barrel, which is a key level for Baytex since it based its 2019 capital budget on the cash flows it could produce at that oil price. If oil keeps falling, the company might have to reduce spending so that it doesn't tack on any more debt.

In addition to the pressure from lower oil prices, Baytex is also falling due to some recent analysts downgrades. On Friday, analysts at Macquarie downgraded the company's stock from outperform to neutral. Meanwhile, Veritas downgraded shares today from buy to sell.

Now what

Baytex Energy had hoped to generate some free cash flow this year so it could continue chipping away at its large debt load. However, if the global economy does weaken, it could hurt oil demand growth, which could cause prices to fall further, potentially affecting Baytex Energy's ability to grow as well as improve its balance sheet. That's why investors are better off avoiding this oil stock and instead, consider one of these five since all could handle sub-$50 oil with ease.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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$2.84 (-5.33%) $0.16

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