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Why Legacy Reserves Has the Highest Insolvency Risk

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Insolvency risk

In this series so far, we’ve looked at the leverage and liquidity positions of four upstream MLPs and analyzed their commodity price exposure. From this analysis, it’s clear that Legacy Reserves (LGCY) has the highest insolvency risk considering its low liquidity, high leverage, and high commodity price exposure. At the same time, Memorial Production Partners (MEMP) and Vanguard Natural Resources (VNR) look relatively safe considering their strong hedge positions. However, MEMP seems to have slightly lower insolvency risk compared to VNR considering its better liquidity and leverage position. EV Energy Partners (EVEP) will likely benefit from its high liquidity and low leverage.

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Vanguard Natural Resources

Now, let’s look at what Wall Street analysts recommend for these four upstream MLPs. 66.7% of analysts surveyed rate Vanguard Natural Resources a “hold,” 22.2% rate it a “sell,” and the remaining 11.1% rate it a “buy.” The consensus target price of $3.0 for VNR implies a 101.3% price return in the next 12 months from its May 25, 2016, closing price of $1.49.

Memorial Production Partners

55.6% of analysts rate Memorial Production Partners a “hold,” 33.3% rate it a “sell,” and the remaining 11.1% rate it a “buy.” MEMP’s consensus target price of $2.38 implies a 5.8% price return in the next 12 months from its May 25 closing price of $2.25.

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EV Energy Partners

EV Energy Partners has the most “buy” ratings among the selected peer group. 66.7% of analysts surveyed by Bloomberg rate EVEP a “hold,” 16.7% rate it a “buy,” and the remaining 16.7% rate it a “sell.” However, EVEP has the lowest coverage by Wall Street analysts. EVEP’s consensus target price of $2.5 implies a -0.2% price return in the next 12 months from its May 25 closing price of $2.55.

Legacy Reserves

Legacy Reserves has the most “sell” ratings among the selected peer group. 37.5% of analysts rate LGCY a “sell” and the remaining 62.5% rate it a “hold.” The MLP doesn’t have any buy recommendations. LGCY’s consensus target price of $1.6 implies a -42.4% price return from its May 25 closing price of $2.7.

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