In the past year or so, we have gotten used to seeing double-digit declines in energy stocks. That’s why the recent surge in Linn Energy LLC (NASDAQ:LINE) stock looks that much more impressive. In the past five trading sessions, Linn Energy stock’s price skyrocketed an astonishing 255%, from $0.45 to $1.60.
The No. 1 Catalyst for Linn Energy
As is the case with most energy companies, Linn Energy stock is quite sensitive to the ups and downs in oil prices. Last week, WTI crude surged 9.5%, from $32.78 to $35.92 a barrel. Moreover, the momentum seems to be going strong. By Wednesday afternoon, WTI crude climbed to more than $38.00 a barrel. It’s no surprise, then, that shares of oil and gas companies are soaring.
Of course, the recent surge in oil prices would look minuscule compared to the massive downfall earlier. WTI crude was trading at more than $100.00 a barrel back in the summer of 2014. So, even after solid gains in recent weeks, oil is still down more than 60%!
The gigantic downturn in oil prices has left most oil companies deep in the doldrums. As a result, short sellers jumped on the opportunity.
LINE stock was no exception. I mean, when a stock goes from more than $13.00 per share to $0.38 in 10 months, the sentiment is bearish to say the least.
However, while short sellers enjoyed solid gains during LINE stock’s downfall, they might have started panicking when the stock shot up again.
You see, short sellers would eventually have to cover their positions. And when LINE stock was having double-digit gains every single day of the week, short sellers rushed to buy back the stock they sold. That is, the short squeeze has taken LINE stock’s rise to a whole new level.
The Bottom Line on LINE Stock
At the end of the day, a rise in oil prices alone is not going to be enough. While higher oil prices would certainly be great for Linn Energy’s business, the company’s high debt burden would still be a drag on LINE stock.
By the end of the third quarter of 2015, Linn Energy had more than $10.6 billion in long-term debt. (Source: “Supplemental Q3 2015 Financial and Operational Results,” Linn Energy LLC, November 5, 2015.) However, the company went through a major debt exchange in the fourth quarter, which could reduce its total debt by $1.0 billion. (Source: “Linn Energy Announces Senior Note Exchange Agreements,” Linn Energy LLC, November 13, 2015.)
Linn Energy is going to report fourth-quarter earnings on Thursday, March 10. Other than earnings, investors will also be looking for improvements in the company’s balance sheet. If Linn Energy manages to present a better-than-expected liability section and deliver solid earnings, there might be even more upside in LINE stock.