_dnr sell

FINANCIAL SONAR: REALITY RADAR ON COMPANY PERFORMANCE

DENBURY RESOURCES INCNYSEDNROIL, GAS & CONSUMABLE FUELS INDUSTRY SELLOVERALL RATING FOR 4TH QUARTER 2014

www.jeffersonresearch.com

2015 Jefferson Research & Management Report prepared on May 8, 2015

OUR EVALUATION OF DNRDENBURY RESOURCES INC is showing strong Cash Flow Quality, and Valuationsuggests a lower amount of price risk, but Operating Efficiency, Balance Sheet Qualityand Earnings Quality are weak. When combined, DNR deserves a SELL rating.

The primary reason the overall rating dropped during the last quarter was a decrease inthe Balance Sheet rating due to weakening receivable and inventory positions. Anotherimportant factor in the downgraded overall rating was a weakening OperatingEfficiency rating.

HISTORICAL RATINGS

Q1 2014 Q2 2014 Q3 2014 Q4 2014

OVERALL RATING HOLD HOLD HOLD SELL

EARNINGS QUALITY STRONGEST STRONGEST WEAK WEAKEST

CASH FLOW QUALITY STRONG WEAK STRONG STRONGEST

OPERATING EFFICIENCY WEAK WEAKEST WEAK WEAKEST

BALANCE SHEET WEAK STRONG STRONGEST WEAKEST

VALUATION LOW RISK LOW RISK LOW RISK LOW RISK

FINANCIAL SONAR FOR DNR4TH QUARTER 2014

VALUATION

LO

W RIS

K

BALA

NCE SH

EET

WEAKEST

OPERATING EFFICIENC

Y

W EAKEST

CASH FLO

W QUALITY

STRONGES

T

EARNINGS QUALITYWEAKEST

PRICE TRENDS AND VALUATION

Price (AS OF 04/30/15) $8.80 MARKET CAP. $3.1 BILLION PRICE/SALES 1.1

PRICE/EARNINGS 4.8 PRICE/EARNINGS GROWTH 0.1 PRICE/CASH FLOW 2.1

PRICE/ADJUSTED EARNINGS 8.6 PRICE/ADJUSTED EARNINGS GROWTH 12.6 PRICE/ADJUSTED CASH FLOW 1.8

$5.00

$7.50

$10.00

$12.50

$15.00

$17.50

$20.00

$5.00

$7.50

$10.00

$12.50

$15.00

$17.50

$20.0052 Week High: $18.50 on 06/23/14

52 Week Low: $6.40 on 12/08/14

May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr

20152014

100 Million 100 Million

Average Weekly Volume

Page 1 of 11





EARNINGS QUALITY: WEAKESTEarnings quality has long been analyzed and used by investors as a measure of the fundamental quality of the company and itsfuture prospects. Companies may be including certain items that increase reported earnings and often the amount of cash flowsupporting the earnings may be weak. Jefferson adjusts for these kinds of items and other anomalies to produce an adjustedearnings number that more accurately reflects ongoing business fundamentals at DENBURY RESOURCES INC. Reported earningsare compared to the Jefferson adjusted earnings as a means to gauge earnings quality. Also measured is the amount of cash flow thatunderpins earnings.

The earnings quality for DNR decreased from WEAK to WEAKEST.

Though the reported net income increased during the last quarter to $363.0M from $268.0M, the quality of that reported net incomedeclined. In addition, operating cash flow decreased during the last quarter to $337.0M from $340.0M, and the ratio of operatingcash flow to earnings has also declined.

NET INCOME VS. ADJUSTED NET INCOME $ IN MILLIONSAdjusted Net Income

Adjusted Net Income as a Percentage of Net Income

0

250

500

750

Fiscal Year2012

412

.0

409.0

100.6%

Fiscal Year2013

342.9

635.0

54.0%

Trailing12 Months

343.8

635.0

54.1%

Q3 2014

107.0

268.0

39.9%

Q4 2014

18.0

363.0

5.1%

EARNINGS VS. OPERATING CASH FLOW $ IN MILLIONSReported Operating Cash Flow

Operating Cash Flow as a Percentage of Earnings

0

1,000

2,000

Fiscal Year2012

1,245.0

409.0

332.3%

Fiscal Year2013

1,625.0

635.0

192.4%

Trailing12 Months

1,625.0

635.0

192.4%

Q3 2014

610

.0268.0

126.7%

Q4 2014

772.0

363.0

92.9%

ACCRUALS % OF SALES

Actual Accruals Forcasted Accruals

17.6

%

16.3

%

15.7

%

16.8

%

13.8

%

16.5

%

13.6

%

16.1%

14.1%

16.3

%

14.6

%

16.0

%

15.3

%

15.7

%

15.9

%

32.7

%

0.0%

10.0%

20.0%

30.0%

40.0%

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014

Page 2 of 11





CASH FLOW QUALITY: STRONGESTCash flow is considered by many investors to be the ultimate measure of company performance and more reliable than reportedearnings. The Jefferson measurement eliminates items that are not part of recurring cash flow or the result of actual operations forDENBURY RESOURCES INC. These adjustments to cash flow provide a truer measure of cash flow and the resultant cash flow qualityrating.

The cash flow quality rating for DNR improved from STRONG to STRONGEST as none of the cash flow quality measures improved.

OPERATING CASH FLOW $ IN MILLIONSAdjusted Operating Cash Flow

Adjusted Operating Cash Flow as a Percentage of Operating Cash Flow

0

1,000

2,000

Fiscal Year2012

1,245.0

1,361.0

91.5%

Fiscal Year2013

1,625.0

1,222.0

133.0%

Trailing12 Months

1,625.0

1,222.0

133.0%

Q3 2014

610

.0

340.0

179.3%

Q4 2014

772.0337.0

228.8%

FREE CASH FLOW $ IN MILLIONSAdjusted Free Cash Flow

Adjusted Free Cash Flow as a Percentage of Free Cash Flow

0

250

500

Fiscal Year2012

58.0

173.0

33.4%

Fiscal Year2013

463.0

59.0

773.2%

Trailing12 Months

463.0

59.0

773.2%

Q3 2014

319

.0

49.0

642.0%

Q4 2014

459.0

24.0

1852.2%

FLOW RATIO

0.00

0.50

1.00

1.50

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

CASH FLOW ROIAdjusted Cash Flow ROI

0.0%

5.0%

10.0%

15.0%

20.0%

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

DEBT COVERAGEAdjusted Debt Coverage

0

20

40

60

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

Page 3 of 11





OPERATING EFFICIENCY: WEAKESTThe ability of DENBURY RESOURCES INC to earn a profit is in part the result of how rapidly it converts its collection of assets intorevenues and the resulting earnings and cash flow margins available. Operating Efficiency is measured by a combination of factorsincluding: return on invested capital (ROIC), gross margin, EBIT margin, asset turnover, equity turnover, and lastly Staff, General,and Administrative costs as a percentage of sales (SGA).

The operating efficiency rating for DNR declined from WEAK to WEAKEST as the EBIT margin, SGA costs and gross margindeteriorated since the last quarter.

The EBIT margin declined from 35.4% to 16.5%, the largest percentage decrease of the operating efficiency measures. The lowerEBIT margin indicates that DNR's pre-financing costs have increased.

In addition, the SGA costs deteriorated from 6.4% to 7.4% of sales. The higher SGA costs indicate that DNR has increased the amountof revenue devoted to overhead costs.

GROSS MARGINtDOWNChange from previous quarter:

55.0%

60.0%

65.0%

70.0%

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

EBIT MARGINAdjusted EBIT Margin tDOWNChange from previous quarter:

0.0%

20.0%

40.0%

60.0%

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

NET MARGINAdjusted Net Margin sUPChange from previous quarter:

-50.0%

0.0%

50.0%

100.0%

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

SG&A AS A PERCENTAGE OF SALESsUPChange from previous quarter:

5.0%

6.0%

7.0%

8.0%

9.0%

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

Page 4 of 11





OPERATING EFFICIENCY: WEAKEST

ROICAdjusted ROIC sUPChange from previous quarter:

2.0%

4.0%

6.0%

8.0%

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

RETURN ON INCREMENTAL INVESTED CAPITALtDOWNChange from previous quarter:

-20.0%

-10.0%

0.0%

10.0%

20.0%

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

ASSET TURNOVER

0.18

0.19

0.20

0.21

0.22

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

EQUITY TURNOVER

0.36

0.38

0.40

0.42

0.44

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

CASH CONVERSION CYCLE IN DAYSData not available for this chart.

Page 5 of 11





BALANCE SHEET QUALITY: WEAKESTThe balance sheet shows the ability of DENBURY RESOURCES INC to pay its bills and fund future growth. It also provides clues toaggressive accounting since reported earnings that do not generate cash flow generally end up somewhere on the balance sheet. Thefollowing are analyzed in determining balance sheet quality: quick ratio, current ratio, cash position, accounts receivable days salesoutstanding (AR DSOs), and number of days inventory is held prior to sale to customers (Inv Days).

The balance sheet rating for DNR weakened from STRONGEST to WEAKEST as the quick ratio and AR DSOs deteriorated over thelast quarter.

The quick ratio declined from 0.7X to 0.6X. The lower quick ratio indicates that DNR has decreased the amount of liquid assetsrelative to current liabilities. In addition, AR DSOs deteriorated from 49 to 50 days. The higher AR DSOs indicates that DNR haslengthened the time it takes on average to receive payment from its customers, thereby decreasing liquidity.

RECEIVABLES DAYS OUTsUPChange from previous quarter:

49

50

51

52

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

INVENTORY DAYS OUTData not available for this chart.

CURRENT RATIOsUPChange from previous quarter:

0.60

0.80

1.00

1.20

1.40

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

QUICK RATIOtDOWNChange from previous quarter:

0.50

0.60

0.70

0.80

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

Page 6 of 11





BALANCE SHEET QUALITY: WEAKEST

DEBT/EQUITYDebt/Tangible Equity tDOWNChange from previous quarter:

60

70

80

90

100

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

DEBT/ASSETSDebt/Tangible Assets tDOWNChange from previous quarter:

28

30

32

34

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

CASH $ IN MILLIONSsUPChange from previous quarter:

0

50

100

150

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

Page 7 of 11





VALUATION: LOW RISKA favorable valuation (a LEAST RISK or LOW RISK rating) implies lower potential downward price risk that is evidenced by acompany price multiple that is lower than the corresponding sector average. The valuation rating is based on both absolute andrelative levels at DENBURY RESOURCES INC compared to its peers within its sector based on price to earnings (PE), price toearnings growth (PEG), price to sales (PS), and price to cash flow (PCF).

The valuation rating for DNR remains a LOW RISK as the price to earnings, price to sales, and price to cash flow ratios became moreattractive over the last quarter.

The PE ratio relative to the sector average PE improved from 0.37X to -1.20X while all other valuation measures were either improvedor unchanged. Taken together these changes were not sufficient to increase the overall valuation rating.

PRICE/EARNINGS

RANGE

LAST 2 YEARS LOW HIGH AVERAGE

Reported Price/Earnings 4.80 31.90 14.91

Adjusted Price/Earnings 7.20 15.30 12.90

Sector Price/Earnings -4.00 21.50 16.30

As Reported Adjusted Oil, Gas & Consumable Fuels Sector

16.1

14.8

-0.1

31.9

14.1

0.0

8.0

7.2

0.1 4.8 8.6

-4.0

-10

0

10

20

30

Q1 2014 Q2 2014 Q3 2014 Q4 2014

PRICE/CASH FLOW

RANGE


Reported Price/Cash Flow 2.10 8.00 5.85

Adjusted Price/Cash Flow 1.80 16.40 7.49

Sector Price/Cash Flow 7.90 10.70 9.24


6.5

7.3

10.3

8.0

16.4

10.7 3.1

3.2

9.1 2

.1

1.8

10.2

0

5

10

15

Q1 2014 Q2 2014 Q3 2014 Q4 2014

PRICE/EARNINGS GROWTH

RANGE


Reported Price/Earnings Growth 0.10 0.10 0.10

Adjusted Price/Earnings Growth 12.60 12.60 12.60

Sector Price/Earnings Growth -0.10 0.60 0.14


NA

NA

-0.1

NA

NA

0.0

NA

NA

0.1

0.1

12.6

0.0

-5

0

5

10

15

Q1 2014 Q2 2014 Q3 2014 Q4 2014

PRICE/SALES

RANGE


Reported Price/Sales 1.10 6.20 3.71

Sector Price/Sales 1.90 2.20 2.05

As Reported Oil, Gas & Consumable Fuels Sector

3.7

2.2

4.0

2.1

3.8

2.0

1.1

2.20

1

2

3

4

Q1 2014 Q2 2014 Q3 2014 Q4 2014

Page 8 of 11





PEER VALUATION COMPARISON

TICKER COMPANY MARKET CAP.PRICE ON04/30/15

PRICE/EARNINGS

PRICE/SALES

PRICE/CASHFLOW

PRICE/EARNINGSGROWTH

VALUATIONRATING

LPI LAREDO PETROLEUM INC $3.4 B $15.80 8.4 2.4 3.6 0.1 LOW RISK

MPLX MPLX LP $3.3 B $75.70 48.8 10.7 34.3 1.0 MOST RISK

GLNG GOLAR LNG LTD BERMUDA $3.2 B $34.40 0.0 31.9 61.5 NA MOST RISK

DNR DENBURY RESOURCES INC $3.1 B $8.80 4.8 1.1 2.1 0.1 LOW RISK

NGL NGL ENERGY PARTNERS LP $3.1 B $29.30 -46.4 0.1 14.6 NA LOW RISK

CMLP CRESTWOOD MIDSTREAM PTNRS LP $3.0 B $15.90 -34.5 1.1 14.9 NA LOW RISK

CRZO CARRIZO OIL & GAS INC $2.9 B $55.70 11.4 3.2 4.2 0.0 MEDIUM RISK

OIL, GAS & CONSUMABLE FUELS SECTOR $16.1 B -4.0 2.2 10.2 0.0

PEER OPERATING COMPARISON

TICKER COMPANY MARKET CAP.

GROSSMARGIN

(%)

EBITMARGIN

(%)

NETMARGIN

(%) ROIC (%)

CASHCONVERSIONCYCLE (DAYS)

OPERATINGEFFICIENCY

RATING

LPI LAREDO PETROLEUM INC $3.4 B 58.4 15.4 84.8 9.4 0.0 MOST RISK

MPLX MPLX LP $3.3 B 49.5 27.7 21.0 11.0 NA LOW RISK

GLNG GOLAR LNG LTD BERMUDA $3.2 B 39.9 -18.6 26.9 0.0 0.0 MEDIUM RISK

DNR DENBURY RESOURCES INC $3.1 B 56.5 16.5 75.7 7.2 0.0 MOST RISK

NGL NGL ENERGY PARTNERS LP $3.1 B 5.3 1.2 -0.2 -0.7 12.0 MOST RISK

CMLP CRESTWOOD MIDSTREAM PTNRS LP $3.0 B 17.8 7.9 -10.7 -0.9 8.0 MOST RISK

CRZO CARRIZO OIL & GAS INC $2.9 B 79.8 18.6 79.3 11.5 0.0 MEDIUM RISK

Page 9 of 11





DEFINITIONS

Adjusted Net Income: Adjusted Net Income is a companysreported net income less adjustments for one-time andnon-operating items yielding a more realistic picture of acompanys ongoing earnings.

Accruals Forecasted and Actual: The comparison of forecastedand actual accruals identifies a discretionary build notattributable to a companys sales growth, and could be a sign ofpoor earnings quality. For our purposes, the forecasted accrualcomponent is an aggregate measurement of total accruals(short-term balance sheet accounts) that distinguishes betweennormalized and extraordinary accruals. The normalizedaccruals are based on historical relationships between sales andaccruals and are dynamically adjusted over time to account forchanges in the ratio between these two variables. Normally,short term accruals will grow as sales grow i.e., thenormalized measure. Discretionary accruals are the portion ofaccruals that are in excess of the base factor and thereforeexceed the normal and are extraordinary.

Adjusted Operating Cash Flow: Adjusted Operating Cash Flow isreported operating cash flow less adjustments for one-time andnon-operating items yielding a more realistic picture of acompanys ongoing cash flow from operations.

Adjusted Free Cash Flow: Adjusted Free Cash Flow is reportedoperating cash flow less adjustments for one-time,non-operating items and capital expenditures. This provides amore realistic picture of a companys ongoing cash generationfrom operations after capital investments.

Flow Ratio: The Flow Ratio is a measurement of managementseffectiveness in managing its working capital to maximize thecompanys cash flows. The measure is a ratio of a companysnon-cash current assets to its non-interest bearing short-termliabilities. These non-cash assets include items such asaccounts receivable (which are essentially interest-free loans tocustomers) and inventory (which is subject to obsolescence orspoilage). The non-interest bearing liabilities are essentiallyinterest-free loans to the company. A lower ratio implies tightercash management for a company as it has less cash tied up innon-cash current assets and is able to utilize interest free loansfrom suppliers.

Cash Flow Return on Investment: Cash Flow ROI is a measureof a companys ability to generate operating cash flow from itsinvested capital. Many analysts consider this measure preferableto an earnings return measure such as ROE since cash flow isconsidered a more reliable measure.

Adjusted Cash Flow Return on Investment: Adjusted Cash FlowROI is a measure of the ability to generate operating cash flowfrom its investment in capital calculated using a companysadjusted cash flow.

Debt Coverage: Debt Coverage is a measure of a companysability to cover its debt obligations with cash flow it generatedfrom continuing operations.

Adjusted Debt Coverage: Adjusted Debt Coverage is a measureof a companys ability to cover its debt obligations with cashflow it generated from continuing operations, calculated using acompanys adjusted cash flow.

Adjusted Return on Invested Capital: Adjusted ROIC assesses acompanys efficiency at allocating the capital to profitableinvestments using a companys adjusted net income (see above)yielding a measure of how well a company is using its capital togenerate returns.

Adjusted EBIT Margin: Adjusted EBIT Margin is a measure of acompanys earnings before interest and income taxes lessadjustments for one-time and non-operating items divided by acompanys sales.

Adjusted Net Margin: Adjusted Net Margin is a measure of acompanys net income less adjustments for one-time andnon-operating items divided by a companys sales.

Return on Incremental Invested Capital: ROIIC measures therelationship between incremental investment and incrementalnet operating profit after tax. This provides a measure of thereturns a company is earning on recent investments rather thanall investments as measured by ROIC.

Cash Conversion Cycle: The Cash Conversion Cycle measuresthe number of days working capital is tied up from the date ofpurchase of raw materials until the collection of cash from thesale of the product.

Debt to Tangible Equity: Debt to Tangible Equity is a ratio of acompanys debt to equity less adjustments for goodwill andother intangible assets yielding tangible equity.

Debt to Tangible Assets: Debt to Tangible Assets is a ratio of acompanys debt to total assets less adjustments for goodwill andother intangible assets.

Price/Adjusted Earnings: Adjusted Price/Earnings is a relativevaluation measure comparing a companys share price to itsadjusted net income.

Price/Adjusted Cash Flow: Adjusted Price/Cash Flow is arelative valuation measure comparing a companys share priceto its adjusted cash flow.

Price/Adjusted Earnings Growth: Adjusted Price/EarningsGrowth is a relative valuation measure comparing a companysshare price to its growth in adjusted earnings.

Page 10 of 11





ABOUT THE FINANCIAL SONAR REPORT & METHODOLOGY

The Jefferson Financial Sonar ratings system classifies companies into three categories: Buy, Hold and Sell. The Financial Sonarrating is the result of a point scoring system derived from the five main criteria. The more negative the rating, the more likely theoverall rating will be a Sell. More positive criteria will support an Overall Rating of Buy.

Jefferson Research & Management has developed the Financial Sonar Rating System which is based upon five analytical criteria:Earnings Quality, Cash Flow, Operating Efficiency, Balance Sheet, and Valuation. The first four criteria are rated in one of fourcategories (best to worst): Strongest, Strong, Weak, Weakest. Valuation is also rated in one of four categories (best to worst): LeastRisk, Low Risk, Medium Risk, Most Risk.

ABOUT JEFFERSON RESEARCH & MANAGEMENT

Jefferson Research & Management is an independent investment research and advisory firm founded in 1989 and based in Portland,Oregon. The firm has been providing fundamental research to institutional and individual clients for more than 20 years. FinancialSonar ratings are based on a proprietary rating system developed by Jefferson Research & Management that measures the changesin company fundamentals using information from financial statements.

DISCLAIMER

This report is for information purposes only for clients of Jefferson Research & Management and in no way should be interpreted as acomplete investment recommendation. This report has been prepared exclusively by Jefferson Research & Management.Information contained in this report is obtained from sources believed to be reliable, but no guarantee is made to its accuracy and norepresentation is made that it is complete, or that errors, if discovered, will be corrected.

1) Jefferson Research & Management and its staff are not involved in investment banking activities for firms covered.

2) No employee of Jefferson Research & Management is on the board of any covered company and no outsiders are members ofJefferson Research & Managements board.

3) Jefferson Research & Management employees trading stock in rated companies are subject to trading restrictions prior to release(once identified) and for a one day period subsequent to rating changes but do not individually or collectively own more than 1percent of the outstanding stock of a covered company.

No part of this report can be reprinted or transmitted electronically without the prior written authorization of Jefferson Research &Management.

Page 11 of 11

_dnr sell

Documents

Transcript of _dnr sell