Ring Energy (REI) could see improving profitability and stronger natural gas realizations over the next 18 months as new pipeline takeaway capacity boosts Waha gas prices, more than offsetting the impact of weaker oil prices, BofA Securities said in a Wednesday note.

The analyst said Ring's net asset value is underappreciated because current weak spot Waha pricing masks the potential for improved natural gas realizations and profitability as major pipeline projects come online.

BofA said higher Waha natural gas prices should be the primary driver of Ring's valuation, based on a long-term WTI oil price assumption of $65 per barrel and net Waha gas realizations of about $3 per MMBtu, while citing weaker commodity prices and delays to Waha pipeline projects as key risks.

BofA initiated coverage of the stock with a buy rating and a $2 price target.

Ring Energy shares were up 1.7% in Wednesday trading.

Price: 1.20, Change: +0.02, Percent Change: +1.69