Energy
SunTrust Says Top Energy Stocks Could Be Going Much Higher
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Those on Wall Street that were bearish on the oil patch certainly have changed their tune, and with good reason. After bottoming in 2014 at an incredible $26 per barrel, the price has jumped over the $70 mark, getting nudged even higher by the United States departing the Iran deal and the former glut in supply finally being erased. While nobody really wants to see a $100 per barrel price, as that would start to choke off the economic growth, it’s possible $80 could be in sight.
Like many on Wall Street, SunTrust Robinson Humphrey applauded the outstanding first-quarter numbers posted by the companies in its research coverage universe. In a new research report, the firm also noted that most gave solid forward guidance as well.
The report had this to say:
Most exploration and production companies in our coverage universe turned in strong quarters along with equally as impressive guidance for the remainder of 2018. When examining the winners, there appears to be little discretion between what play they operate or market capitalization. What is noticeable is that nearly all the best performers had solid leverage and/or are quickly working on getting there. Lastly, we believe that nearly all names on the list still have material upside from current levels as judged by our price targets that are materially higher.
Given the huge production numbers coming out of the Permian Basin, we screened the SunTrust stocks rated Buy that have a big footprint there. These five have big upside to the analyst price targets.
This is a top play for investors looking to the Permian Basin. Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States. It has scattered positions around some of the top producing wells in the region.
The company is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions.
Investors receive just a 0.65% dividend. The SunTrust price target for the stock is $130. The Wall Street consensus price target is higher at $134.42. The shares closed Thursday at $97.82.
This is a top Permian Basin play for more aggressive accounts and is a top pick across Wall Street. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.
Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.
SunTrust has a $165 price target, and the consensus target is $156.67. Shares closed Thursday at $129.79.
This lesser known company is a solid play for those looking for Permian Basin exposure at a reasonable price. Energen Corp. (NYSE: EGN) is a pure-play Permian operator with 147,000 net acres in the basin. The majority of its development activity targets the Midland and Delaware Basin, where the company holds 87,000 and 60,000 net acres respectively. Energen also holds an 84,000 net acre position in the Platform area where minimal capital investment is expected.
Top analysts feel that Energen is a rare breed, with strong debt-adjusted growth, inventory depth from a quality and blocky Permian footprint, balance sheet and value. Recent Generation 3 completions show promise for a step-change in well productivity, and none of that appears baked into guidance or street estimates.
The $85 SunTrust target price is well above the consensus target of $74.85. Shares closed Thursday at $68.73.
This is smaller capitalization stock for aggressive investors to consider. Parsley Energy Inc. (NYSE: PE) is an oil and gas producer with 227,000 net acres in the Permian Basin. The majority of acreage sits on the Midland side of the basin, but the company also holds a small acreage position in the Delaware Basin.
The company had 222 million barrels of oil equivalent of proved reserves at the end of 2016, of which 61% was oil. Through strategic acquisitions and acreage swaps, it has grown its acreage position since its initial public offering and has over 7,900 horizontal locations across multiple prospective zones.
The company is catalyst rich and a Permian Basin pure play. Parsley Energy has some of the strongest wells in the basin, generating returns that are among the best in the industry. It is also rapidly de-risking its drilling inventory and is well-positioned to continue to beat its strong growth projections.
SunTrust has set its price target at $45 The consensus target is $39.15, and shares closed Thursday at $32.84.
Many Wall Street analysts love this stock for a pure crude oil play. Pioneer Natural Resources Co. (NYSE: PXD) operates a modern fleet of more than 24 top performing drilling rigs throughout onshore oil and gas producing regions of the United States and Colombia. Pioneer production services are supported by 100 well-servicing rigs, more than 100 cased-hole, open-hole and offshore wireline units, and a range of advanced coiled tubing units.
Pioneer is a huge player in the Permian Basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second-largest oil reservoir in the Midland Basin. With a stellar balance sheet, the company is poised to remain a top player in the Permian as it expects to deliver solid production growth in 2018 and beyond.
The company’s unmatched depth of low-cost inventory and balance sheet allow it to compete favorably in both mild and moderate recovery case scenarios. In addition to asset and financial strength, many analysts feel that Pioneer offers the second highest multiple contraction among the large-cap Permian pure-play peers, as well as the highest free-cash-flow yield.
Investors receive a 0.05% dividend. The SunTrust price target is $235. The consensus price figure is $230.01, and shares closed at $203.19 on Thursday.
These five top stocks all make good sense for investors looking to add energy, especially companies with Permian Basin exposure. They are also smart plays now considering that some also could be takeover candidates. Despite the recent buying, most are still offering timely entry points for investors with a long-term horizon, and with oil potentially going higher, now is the time to add or initiate positions.
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