Sanchez Energy Corporation
(SN - Free Report
) has been going through a rough patch for quite some time now. A couple of days back, the Houston-based oil explorer received its second delisting warning from New York Stock Exchange (NYSE), as the company’s market capitalization had been below $50 million for more than 30 consecutive trading days. Notably, in December 2018, Sanchez had received its first delisting warning from NYSE, as the stock had been trading below $1 a share for more than 30 trading days in a row.
What’s Troubling Sanchez?
Markedly, Sanchez is one of the leading operators in the Eagle Ford Shale, just behind EOG Resources, Inc. (EOG - Free Report
) and ConocoPhillips (COP - Free Report
) . However, the company is grappling with various challenges including its sagging financial performance.
While Sanchez’s production and sales started gathering steam post the $2.3-billion acquisition of Anadarko Petroleum Corporation’s (APC - Free Report
) Eagle Ford acreage in January 2017, the top line failed to keep pace with interest payment commitments along with obligations to its preferred shareholders. Notably, the company reported losses and missed estimates in the trailing three quarters.
During the last reported quarter, it posted a loss of $17.3 million on sales of $278 million. In addition, Sanchez is plagued by hefty interest payments and commitments to its preferred shareholders. During the quarter, interest obligations and payment to its preferred stockholders accounted for $44.1 million and $12.5 million, respectively. As it is, the company is suffering from elevated leverage. Notably, instead of paying dividends to its preferred shareholders in cash, the company has decided to pay stock dividends, indicating another sign of stretched financials. Sanchez’s borrowing base has also been reduced from $380 million to $315 million last month.
Sanchez suffered a major blow when it received its first notice from NYSE to boost the stock above $1 a share within six months for preventing it from delisting. With the company recently receiving the second warning from NYSE, investors’ confidence is dampening owing to Chapter 11 bankruptcy risks.
Trying Times Ahead
Per stock exchange rules, Sanchez has 45 days to draft and submit a plan that could boost its market capitalization above $50 million within a time frame of 18 months. While the company has been exploring strategic options to strengthen financials and boost its market value, a string of negative free cash flows, high debt burden along with volatility in the commodity price environment make this Zacks Rank #5 (Strong Sell) stock a risky bet. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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