Energy
After Gigantic Anadarko Acquisition, 6 Top Stocks That May Be Next
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If anything gets the Wall Street juices flowing, it’s a big acquisition, and the recently announced $33 billion purchase of Anadarko Petroleum Corp. (NYSE: APC) by mega-cap integrated giant Chevron Corp. (NYSE: CVX) should be just the ticket. The combined company will become the largest operator in the massive Permian Basin, which is located in West Texas and New Mexico.
In addition, the takeover will place Chevron neck-and-neck with the oil and gas production of Exxon Mobil and Royal Dutch Shell, both of which have dominated Big Oil over the past 10 years. In fact, the combined company’s cash flow last year of $36.5 billion would have exceeded Exxon’s.
The question for investors now is whether there are more deals to come, and the answer appears to be most likely yes. In fact, in a new SunTrust Robinson Humphrey research note, the analysts see more deals in the offing, especially after talking with management teams at companies they cover.
Six companies are cited as potential targets, and all make sense for investors looking to add solid energy plays to existing portfolios. While there is no guarantee any will be actually acquired, they all are great companies to own for long-term investors. We screened the six SunTrust potential candidates against our 24/7 Wall St. research database looking for firms that had Buy ratings, and we found them for each and every one.
Concho Resources
Last year, this company bought RSP Permian for $9.5 billion, and most on Wall Street loved the deal. Concho Resources Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.
It offers investors a unique combination of investment themes, including valuation, rate-of-change and resource expansion themes. The company is the largest acreage holder of the publicly traded Permian large-caps and provides investors peer-leading exposure to three of the most impactful catalysts across the Delaware Basin, including the Wolfcamp XY, Wolfcamp D and Bone Spring Shale.
Concho Resources has reported strong earnings but still has a lot of upside to the posted price targets.
The company pays a small 0.45% dividend. The Stifel price target is a gigantic $239, while the Wall Street consensus target is $154.71. The shares closed Friday at $113.89, up almost 9% on the day.
EOG Resources
This leading energy company’s stock is on the respected Goldman Sachs Conviction Buy List. EOG Resources Inc. (NYSE: EOG) is one of the largest independent exploration and production companies operating in the United States, Canada, Trinidad, the United Kingdom and China.
The company has a big well in Loving County in the Delaware Basin. Top analysts say the well ranks as one of the best they have ever seen in the basin, and it could easily impact other companies drilling in the region. EOG’s average dollar gross per well on a yearly basis ranks third among all operators.
Shareholders receive a 0.95% dividend. The price target at Goldman Sachs is $128, and the consensus target is $119.11 The stock closed on Friday at $105.33, up almost 7% on the day.
Noble Energy
Noble Energy Inc. (NYSE: NBL) is an independent energy company engaged in the acquisition, exploration and production of crude oil, natural gas and natural gas liquids worldwide. Its principal projects are located in Denver-Julesburg Basin, Marcellus Shale, Eagle Ford Shale and Permian Basin of the United States, as well as in deepwater Gulf of Mexico, offshore Eastern Mediterranean and offshore West Africa. As of December 31, 2015, the company had approximately 1,421 million barrels oil equivalent of total proved reserves.
Last year, Noble sanctioned the phase 1 development of its giant natural gas discovery in Israel for a gross development cost of $3.75 billion with first sales expected in late 2019. The project will include the development of 9.4 trillion cubic feet gross from four producing wells, each capable of producing in excess of 300 million cubic feet per day.
Shareholders receive a 1.62% dividend. Merrill Lynch has a $49 price target. The consensus target is $432.72, and the stock was last seen trading at $26.87, up nearly 7% on Friday.
PDC Energy
This smaller cap name is somewhat off the radar but has tantalizing assets for a company looking to add growth potential. PDC Energy Inc. (NYSE: PDCE) is a diversified exploration and production outfit with assets in the Rockies, Permian and Utica Shale. The company’s core position is in the Wattenberg, with 100,000 net acres, alongside a recently acquired 55,000 net acre position in the Permian Basin.
The company is targeting 10% to 15% production growth in 2020, and operating progress continues with operating expense improving and well cost declining in the Delaware with longer laterals and modified completion design.
Cowen recently initiated coverage with an Outperform rating and a $53 price target. The consensus target is $56, and shares ended last week at $44.24.
Pioneer Natural Resources
Many Wall Street analysts love this stock for a pure crude oil play, and it also resides on the Goldman Sachs Conviction Buy List. 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 2019 and beyond.
Pioneer investors receive a tiny 0.38% dividend. The $200 Goldman Sachs price target compares with the $196.32 consensus figure. Shares closed most recently at $168.32, up over 11% on the day.
SRC Energy
This is another small cap company that could be a great bolt-on addition for a larger firm. SRC Energy Inc. (NYSE: SRCI) is an independent oil and natural gas company engaged in the acquisition, development and production of crude oil and natural gas in and around the Denver-Julesburg Basin of Colorado. This basin generally extends from the Denver metropolitan area throughout northeast Colorado into Wyoming, Nebraska and Kansas.
As of December 31, 2018, the company had net proved oil and natural gas reserves of 88 million barrels of oil and condensate, 771.9 billion cubic feet of natural gas and 89.1 million barrels of natural gas liquids, and it operated 985 net producing wells, as well as had 95,200 gross and 86,200 net acres under lease in the Wattenberg Field.
Cowen also recently initiated coverage on SRC with an $8 price target. The analysts’ consensus estimate is $8.17, and the stock was last seen trading at $6.29.
Again, while there is no guarantee of a deal for any of these companies, they are all tremendous buys and have attractive assets. One thing’s for sure: after the massive deals for Anadarko, all eyes are on the energy sector now.
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