Energy

5 Big Oil, Gas and Energy Stocks Analysts Want You to Buy Now

Jon C. Ogg

Published: November 1, 2015 10:28 am

Last Updated: January 13, 2020 5:41 pm

With crude oil having a strong week and closing up around $46.50 per barrel (NYMEX WTI), some investors will again be wondering if oil is starting to stabilize in that $45 to $50 per barrel range. Some investors will even try yet again to find value in the oil patch. 24/7 Wall St. would remind readers that the market, rather than pundit predictions and emotions, will determine the price of oil ahead.

Investors have been picking through the oil patch for some time now to identify where there may be opportunity and where there may still be too much risk. If there is one theme that seems to be prevalent, it is that the larger oil and gas outfits almost certainly are going to be able outlast the smaller and less experienced second-tier and third-tier oil and gas outfits.

This is why investors have been looking for opportunities in the mid-cap and large-cap stocks. And, fortunately or unfortunately for the energy patch, it turns out that there was a group of analysts rallying around a key solar player this past week as well.

24/7 Wall St. tracked five key analyst calls that stood out handily above the rest in the oil patch, and these were calls in the larger companies rather than in the speculative companies. These also all come with Buy or Outperform ratings, and the analyst reports generally have a price target that was higher than or very close to the consensus price target from Thomson Reuters.

Investors need to understand that these should not in any way be considered short-term opportunistic swing trades. If oil rolls back over and heads south, it is only prudent to expect that these oil stocks will see their share prices head south as well. Also, we have included one industry-leading alternative energy sector in this week’s reporting. Here are the positive views from calls in Exxon Mobil, Phillips 66, Suncor, Weatherford and First Solar.

Exxon Mobil

Exxon Mobil Corp. (NYSE: XOM) was reiterated as Buy at Bank of America Merrill Lynch on the heels of the oil and gas giant’s earnings report Friday morning. The firm also kept a $100 price objective alive and well on Exxon Mobil. His take is that Exxon is at a relative advantage over the supermajor oil stocks in that it is coming to the end of major spending cycle. This will allow it generate free cash flow that will should assist it through this down cycle.

Exxon Mobil closed up 0.6% at $82.74 on Friday. It has a consensus analyst price target of $82.16 and a 52-week trading range of $66.55 to $97.20. For whatever this is worth, this Merrill Lynch price target matches the highest of analyst calls.

Merrill Lynch’s report said:

Our price objective of $100 per share is based on a DCF valuation that assumes long term Brent and WTI oil prices of $80 per barrel and $75 per barrel respectively a weighted average cost of capital of 8% and a 0% terminal growth rate.

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Phillips 66

Phillips 66 (NYSE: PSX) managed to beat earnings expectations, with growth ahead from refining and non-refining operations alike. Wells Fargo has an Outperform rating and said that it sees Phillips 66 remaining shareholder friendly after a dividend hike and buying back even more stock.

Wells Fargo raised its valuation range up to $99.00 to $104.00 from its prior $91.00 to $96.00 range, and that is based on only 12 times its 2017 earnings estimate. Phillips 66 closed up 3% at $89.07 on Friday. It has a 2.5% dividend yield and a 52-week range of $57.33 to $90.82 and a consensus price target of $95.33.

Wells Fargo’s report said:

Our valuation range is based on 12 times our 2017 earnings (per share) estimate. Systematic risks include reduced global GDP growth resulting in declines in refined product demand growth, excess/unjustified refining capacity supply growth, dramatic economic or regulatory edicts that depress U.S. oil-directed drilling and/or change U.S. fuel specifications. Company-specific risks include refinery utilization, unplanned downtime, international exposure, JV partner disagreements, and potential balance sheet missteps.

Phillips 66’s management team is focused on improving returns across the entire company, including growing high-return operations like Chemicals and Midstream while reducing the footprint of lower return operations and returning capital to shareholders. Importantly for investors, Phillips 66 offers multiple avenues for management to deliver value enhancements.

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Suncor

Suncor Energy Inc. (NYSE: SU) was raised to Outperform from Sector Perform at National Bank on Friday. This was after the Canadian oil sands giant beat earnings, and shares were higher on the week after the earnings report, despite a 68% drop in profits.

Apparently Suncor caught the eyes of the team at Motley Fool for upside as well, as it said this could be the start of a sustained rally higher and that investors should buy the stock. Suncor closed at $29.73, and it has a 52-week range of $24.20 to $36.35.

Weatherford

Weatherford International PLC (NYSE: WFT) was raised to Positive from Neutral at Susquehanna back on Tuesday, and the $12.00 price target compares to a $9.61 close ahead of the call. Weatherford actually managed to close up at $10.24 on Friday, and the Susquehanna price target is actually just below the $12.39 consensus price target.

Interestingly enough, Weatherford’s corporate credit rating was downgraded last week by Moody’s. Weatherford has a 52-week range of $7.21 to $17.27.

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First Solar

First Solar Inc. (NASDAQ: FSLR) may be far from an oil and gas stock, but it is the leader in production of photovoltaic cells and panels for solar power. Its shares were up almost 12% at $57.07 on Friday after Thursday’s strong earnings.

We tracked several positive analyst calls in First Solar: Merrill Lynch has only a Neutral rating, but it raised its price objective to $61 from $58 in its call. The highest analyst target is $81.00, but Cowen (Outperform) raised its price target to $75 from $65, and Standpoint (Buy) raised its price target to $72 from $60. Another big analyst report was from Janney Capital Markets. The firm reiterated its Buy rating and raised its fair value objective on Friday. Its report on First Solar said:

First Solar’ third quarter preliminary results were strong. Earnings per share of $3.38 was well above our $1.51 forecast (consensus was $1.50) as recognition of revenue from the Desert Stateline project, cost improvements, and decreased module recycling/collection obligations all benefited profit margins. Quarterly results aside, the company raised full year 2015 guidance, and we’ve adjusted our estimates to reflect positive third quarter performance. We maintain our BUY rating and raise our Fair Value from $77 to $79.