Linn Energy Gaining Power as the Bad Headlines Fade Away
The master limited partnership's stock currently trades around $29.80, down 3.3% for the year to date and nearly 10% for the past 52 weeks.
Back in March I wrote an article about how Linn was "walking the line" of risk versus reward. At the time we were reading one negative headline after another about Linn, though most of the information stemmed from 2013 accusations by Hedgeye's Kevin Kaiser about Linn's financials. These accusations were later deemed to be without merit.
After an SEC investigation, Hedgeye contended, Linn's $4.9 billion (and immediately accretive) acquisition of Berry Petroleum would be at risk. The stock promptly fell from nearly $40 to the low $20s. It gradually recovered up to about $34 early this year.
Then Barron's came out with a bearish article, leveraging Hedgeye's research to conclude Linn was still overvalued. Barron's argued the then-ongoing SEC investigation would almost certainly turn up something fishy about how Linn was calculating its distributable cash flow (from which it pays out distributions). The stock fell once more, from $34 to about $28.
The Berry acquisition has since been completed after the SEC gave Linn a clean bill of health from an accounting perspective, and the stock has stabilized. The question now becomes how much of the Hedgeye- and Barron's-induced drop was warranted.
From the technicals illustrated below, we can see a bullish pattern finally emerging for Linn as its shorter-term moving averages cross above its longer-term moving average: