Jefferies downgraded Vaalco Energy (EGY) to underperform from hold, citing the stock's valuation.
Analyst Leo Mariani notes that as of Monday's close, Vaalco Energy was at a 153% premium to the value of announced discoveries, which he estimates at $4 per share in a flat $65 West Texas Intermediate oil price environment. He believes there's upside to announced discoveries, but the stock is ahead of itself given that Vaalco Energy is not expected to commence drilling an exploratory well until at least the second quarter of 2007. Despite the downgrade, he ups his 84 cents 2006 earnings per share (EPS) estimate to 88 cents and his $1.06 2007 estimate to $1.11. His $4.50 target moves to $6 amid better-than-expected performance at Etame operations and earlier-than-expected production at Avouma/South Tchibala.