Raymond James: Kimbell Royalty (KRP.US) faces short-term headwinds, downgrades to "Hold"

On Monday, Raymond James downgraded kimbell royalty Partners (KRP.US) from "Strong Buy" to "Hold", citing some recent headwinds such as the A-round redemption and the lower-than-expected production guidance of 255,000 barrels of oil equivalent per day in fiscal 2025.Kimbell's allocation in 2025 is significantly lower than Raymond James' forecast due to weaker production outlook and lower commodity prices than the previous forecast, with the allocation of about $1.63 per unit still representing over 10% yield, but analyst John Freeman believes the opportunity for returns elsewhere in the industry is more attractive.Freeman said that Kimbell raised $325 million in private placement of A-round convertible preferred stock at 6% interest in the third quarter of 2023 to fund part of its $255 million acquisition of Permian and Mid-Con, and expects to redeem 50% of the units at the bottom of the redemption price in May 2025, and the rest at a later time, but the redemption process becomes more expensive each quarter after the second quarter of 2025.The analyst said he hadn't considered the potential downside of the redemption process before, and he wanted to be more cautious in acknowledging it, though he "100% agrees" with the decision to redeem these units, as the redemption cost will be higher over time.The downgrade comes after Raymond James raised its price target on Kimbell to $15 from $12.50 in September.