Energy

RBC Sees 4 Energy Stocks as Potential Takeover Candidates

Lee Jackson

Published: March 21, 2018 8:15 am

Last Updated: January 12, 2020 2:14 am

It happens every year, and 2018 won’t be any different. Larger companies looking to add to growth, in addition to that of the organic or internal variety, scan the field for purchases and acquisitions that are easy to bolt on and could add returns in a timely fashion. This year the process may even speed up some as last month’s market sell-off may already have put some companies in the sights of acquirers.

In what is a yearly and all-encompassing report, the analysts at RBC go through every sector looking for possible buyout candidates. Last year, the company’s takeover screens yielded 20 that eventually were acquired over the following 12 months.

One screen that should be of interest to many investors is the potential buyout candidates in the energy sector. With constant new innovations to increase production, and a growing sense that the United States will soon be the top energy producer in the world, it makes sense that larger companies would be looking to add new capabilities and technology.

We cross-referenced the RBC potential takeout candidates looking for the highest profile names and found four that like solid choices.

Cabot

This company has an extensive global footprint, and it offers a solid entry point for investors. Cabot Corp. (NYSE: CBT) is a global specialty chemicals and performance materials company. It operates through four business segments focused on reinforcement materials, performance chemicals, purification solutions and specialty fluids.

The company recently announced an expanded range of premium carbon black products for racing and ultra-high-performance tires with the launch of the new PROPEL X carbon black series. The popularity of sports cars and luxury vehicles has led to a steady increase in the demand for high-performance tires. Ultra-high-performance tires are designed with a focus on traction and precise handling characteristics that enable vehicles to safely reach ever-increasing performance requirements.

Shareholders are paid a 2.15% dividend. The Wall Street consensus price target is posted at $74, and the shares closed Tuesday at $58.48. The 52-week trading range is $50.21 to $68.63.

McDermott

This stock has traded sideways for over a year and the company could be a tempting target. McDermott International Inc. (NYSE: MDR) is a provider of integrated engineering, procurement, construction and installation; front-end engineering and design; and module fabrication services for upstream field developments across the world.

The company delivers fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning for offshore and subsea oil and gas projects. Its integrated resources include a diversified fleet of marine vessels, fabrication facilities and engineering offices. It supports its activities with project management and procurement services, while utilizing its fully integrated capabilities in both shallow water and deepwater construction.

The posted consensus price target is at $9.85, above the upper end of the 52-week range of $5.56 to $9.07. The shares closed Tuesday at $6.95.

Oceaneering International

This is deepwater driller and contrarian play that could have potential as a takeover target. Oceaneering International Inc. (NYSE: OII) is a global provider of engineered services and products, primarily to the offshore oil and gas industry, with a focus on deepwater applications. Through the use of its applied technology expertise, Oceaneering also serves the defense, entertainment and aerospace industries.

The services and products it provides to the oil and gas industry include remotely operated vehicles, specialty subsea hardware, engineering and project management, subsea intervention services, including manned diving, survey and positioning services and asset integrity and nondestructive testing services. The company serves the defense, aerospace and commercial theme park industries.

The consensus price target for the shares is $18.89. The stock closed Tuesday at $19.01, in a 52-week trading range of $17.11 to $28.21.

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Rowan Companies

This is a solid value play in the offshore arena. Rowan Companies PLC (NYSE: RDC) is a global provider of contract drilling services with a fleet of 29 mobile offshore drilling units, composed of 25 self-elevating jack-up rigs and four ultra-deepwater drillships. The company’s fleet operates worldwide, including the United States Gulf of Mexico and the U.K. and Norwegian sectors of the North Sea, as well as the Middle East and Trinidad.

Some analysts feel this company will be putting idle stacked rigs back to work over the next two years. If oil price holds above the $60 a barrel level, that could make this company an enticing addition.

The consensus price objective is $14.68. Shares closed Tuesday at $11.65, and the 52-week range is $9.07 to $17.33

While there is absolutely no guarantee that these companies are acquired, they all are outstanding stocks to own in aggressive growth portfolios on their own. The takeout factor just gives them another reason to be considered.