Linn Energy LLC (NASDAQ:LINE) and LinnCo LLC (NASDAQ:LNCO) shares have both tanked today after they revealed that the Securities and Exchange Commission is conducting an informal inquiry into them. In light of the investigation, analysts from at least three firms have issued reports in connection with that inquiry. Two of the three firms downgraded the stocks, while the third maintained its neutral stance.
Linn Energy, LinnCo, Berry Petroleum Stocks Affected
Shares of Linn Energy LLC (NASDAQ:LINE) fell as much as 18 percent today, while LinnCo LLC (NASDAQ:LNCO) shares dropped as much a 17 percent. Berry Petroleum Company (NYSE:BRY) shares were also dragged down by news about the inquiry, falling as much as 6 percent on Tuesday.
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Berry was dragged into the controversy because of LinnCo’s proposed merger with it. At this point it isn’t known yet what impact the SEC inquiry will have into Berry Petroleum Company (NYSE:BRY).
JPMorgan’s Downgrades Of Linn Energy, LinnCo
JPMorgan analysts downgraded both Linn Energy and LinnCo to neutral because it makes the timing of the merger with Berry Petroleum uncertain. They pushed the timing of that merger back and also lowered their price target for the companies to $35 per share.
The analysts expect to see significant volatility in Linn Energy LLC (NASDAQ:LINE) until the inquiry is resolved. They recommend that “investors wait on the sidelines until the dust settles.”
Raymond James’ Downgrades Of Linn Energy, LinnCo
Analyst Kevin Smith at Raymond James previously had Linn Energy LLC (NASDAQ:LINE) rated as a strong buy, but he downgraded it to outperform. He also pushed his price target down a bit, nudging it from $44 per share to $40 per share, although he still likes the company and its stock.
He said they remain confident in the company’s financial health, but they believe that the proposed merger with Berry Petroleum Company (NYSE:BRY) will be pushed out by 30 days or more. According to Smith, even if the deal between the two companies doesn’t close, the companies’ partnership still looks strong.
Both Smith and the analyst team at JPMorgan note that Linn chose to disclose the inquiry even though it was not required to do so. Smith though, adds that an inquiry is not a formal investigation and that the SEC has looked over Linn and LinnCo’s finances “many times” since the questions about the hedging practices of the partnership arose.
Smith says it’s “easier to throw in the towel and stay on the sidelines until the market and the SEC sort all of this out.” That’s essentially what JPMorgan is recommending investors do. Smith though, believes that the inquiry will be over fairly quickly and that it won’t take the SEC long to realize that Linn’s accounting “is in good order.”
Sterne Agee’s View Of Berry Petroleum
Sterne Agee analysts Tim Rezvan and Truman Hobbs maintained their neutral rating on Berry Petroleum Company (NYSE:BRY) in light of the inquiry. They see the best case scenario for current shareholders of the company is for the SEC to close its inquiry and for Linn’s acquisition of Berry to finish in the current quarter. The worst case scenario though, is that the inquiry could turn into a form investigation or that the agency announces findings which effectively force Berry shareholders to vote against the acquisition.