Penn Virginia Resources’ (PVR) merger with its general partner is expected to reap profits in the long term, benefiting from the partnership’s lower cost of capital. This would place the company in a better position to compete for acquisitions, increasing returns on future transactions.
However, this transaction would, in our opinion, be dilutive to the partnership’s distributions in the near term, affecting investor sentiments. Based on expectations for lower distributions, we are retaining our Underperform recommendation on the stock.
Furthermore, we expect the partnership’s future results to be affected by the instability in the capital markets and fluctuation in commodity prices. Penn Virginia shares are presently trading at 23.4x trailing 12-month EPU, compared to the 28.3x average for the peer group. Our target price of $25.00 is based on the 2011 P/E multiple of 15.3.
PENN VA RESRC (PVR): Free Stock Analysis Report
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