One thing that has gotten our attention here at 24/7 Wall St. is something that has rubbed top Wall Street analysts the wrong way. Many investors have chased lower quality energy stocks, and they got a nice hand with the short covering rally that started back in January. However, if the oil rally fades, the weaker stocks will be the first ones to get hit.
A new research note from the energy team at Stifel agrees with that theory and cautions investors against chasing many stocks that they have rated Hold and Sell. While they frown on those companies, they are much more positive on the stocks they feel can continue to face low oil price headwinds, and they raise price targets on nine companies rated Buy.
We focus on four that also have a solid Wall Street following as well.
Anadarko Petroleum
This top stock is still down a stunning 58% since the highs printed in 2014. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate and natural gas liquids (NGLs).
The Midstream segment provides gathering, processing, treating, and transportation services to Anadarko and third-party oil, natural gas and NGLs producers, as well as owns and operates gathering, processing, treating and transportation systems in the United States. The Marketing segment markets oil, natural gas and NGLs in the United States; oil and NGLs internationally; and anticipated liquefied natural gas production from Mozambique.
The company’s asset portfolio includes U.S. onshore resource plays in the Rocky Mountains, the southern United States, the Appalachian basin and Alaska, and the deepwater Gulf of Mexico, as well as international plays in Algeria, Ghana, Brazil, Colombia, Kenya, Liberia, New Zealand and elsewhere. As of December 31, 2014, it had approximately 2.9 billion barrels of oil equivalent of proved reserves.
Back in December, the company once again posted earnings that beat estimates and raised the guidance going forward. In addition to its strong performance, Anadarko is lowering costs and keeping the balance sheet as clean as possible.
Anadarko investors receive a 0.43% dividend. The Stifel price target was raised to $54 from $48, and the Thomson/First Call consensus target is $58.10. Shares closed Monday at $45.63.
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Concho Resources
This is one of the top energy plays in the Permian Basin in West Texas, and it is a Wall Street favorite. 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.
The company recently announced three separate transactions that enhance its position in the southern Delaware Basin, high grade the company’s portfolio and reduce net debt:
- It agreed to acquire approximately 12,000 net acres complementary to its core North Harpoon prospect in Ward and Reeves Counties, Texas, from a private operator for total consideration of approximately $360 million, through a combination of common stock, cash and drilling carry.
- Concho Resources completed an acreage exchange with Clayton Williams Energy, consolidating 21,000 net non-operated acres into a concentrated, operated position adjacent to the Concho’s Big Chief prospect in Reeves County.
- The company also agreed to sell 14,000 net acres in Loving County, Texas, for cash proceeds of $290 million.
The aggregate impact of these transactions is neutral to Concho’s 2016 capital and production outlook.
Stifel lifted its price target to $120 from $109, while the consensus target is $113.26. The stock closed Monday at $101.85.
Noble Energy
This top stock was hit hard after Israel’s high court blocked the government’s proposal to regulate the natural gas industry in a decision that could stall the development of a major oil field by the company. Noble Energy Inc. (NYSE: NBL) is independent energy company that engages in the acquisition, exploration and production of crude oil, natural gas and natural gas liquids worldwide.
The company’s principal projects are located in DJ Basin, Marcellus Shale, Eagle Ford Shale and Permian Basin in the United States, as well as 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.
Noble announced a large debt tender back in January that dramatically increased the financial flexibility at the company. Using a new three-year term loan agreement with seven lending institutions for a principal amount of up to $1.4 billion, the company announced tender offers for three separate debt issuance issues. This should provide annual interest savings of up to $50 million and substantially enhance deleveraging flexibility.
Noble investors receive a 1.33% dividend. The Stifel price target rose to $40 from $34, and the consensus target is $38.53. Nobel closed Monday at $29.68.
Pioneer Natural Resources
Many Wall Street analysts love this stock for a pure crude oil play, and it recently was upgraded by Deutsche Bank and Citigroup. Pioneer Natural Resources Co. (NYSE: PXD) engages in the exploration and production of oil and gas in the United States. The company produces and sells oil, natural gas and NGLs. It has operations primarily in the Permian Basin, Eagle Ford Shale and West Panhandle field in Texas and in the Raton field in southeastern Colorado.
Pioneer is a huge player in the Permian and the Eagle Ford, and it owns more than 20,000 locations in the world’s second largest oil reservoir in the Midland Basin. Wall Street analysts were very positive on the third-quarter results and noted that the company reiterated annual production growth guidance of 15% or more while cutting the number of rigs expected to operate. With a stellar balance and the new capital from a secondary offering earlier this year, the company is poised to remain the number one player in the Permian.
Pioneer investors receive a tiny 0.06% dividend. The Stifel price target rose to $155 from $135, but the consensus figure is at $165.21. Pioneer closed trading on Monday at $137.46.
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Many factors are causing the seesaw movement in oil, and some companies, while cautious near term, see oil hitting $50 by the end of the year. Investors looking to add may want to scale capital into shares now as they could back up.
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