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One of the Best-Positioned E&P Firms

Undervalued Continental Resources should be able to withstand the turmoil in today's energy market better than its peers, says Morningstar's David Meats.


David Meats: Continental Resources (CLR) is one of our best ideas, and it's one of the best-positioned E&P firms in our coverage to withstand the current downturn. We recognize that low oil prices are weighing on earnings, especially since the company has no hedge protection. That's driving up leverage and, at strip prices, the company could see its net debt/trailing EBITDA ratio go as high as four times next year.

But the firm has a very strong liquidity position, with around $1.2 billion available on its credit facility. This is an investment-grade company, which means it doesn't have to worry about redetermination. And it doesn't need to borrow more anyway. Unlike most peers, Continental is expected to remain free-cash-flow neutral next year.

Dave Meats does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.