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Ultra Petroleum Corp. (UPL)

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Concerned by the current weak sentiment for natural gas, we are downgrading Ultra Petroleum Corp. (UPL) shares to Underperform from Neutral. The glut in domestic gas supplies continues to weigh on the fundamentals, and storage levels remain well above their benchmark levels. This translates into a bearish near-to-medium term outlook for natural gas-weighted companies like Ultra.

Taking a cautious view of prices, the company's capital program this year is cutting on dry natural gas development. Even then, we expect Ultra to perform below its peers and industry levels in the coming months. We believe there are other companies in the natural gas E&P group that seem to offer better exposure to the sector.

We expect the company to continue to struggle unless the outlook for natural gas prices improves. This is corroborated by our new Underperform recommendation. Our $22 price objective reflects a multiple of 4.5X trailing twelve-month cash flow.

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