Energy

Merrill Lynch Raises Price Targets on Top Buy-Rated Energy and MLP Stocks

Lee Jackson

Published: June 22, 2016 11:05 am

Last Updated: January 13, 2020 6:31 am

With the spot price of oil holding its own, and many strategists and economists positive on gross domestic product growth in the second half, there is a good chance that any huge drop in oil is probably out of the question. Despite the fact that oil has had an outstanding run off the lows from February, and it could move sideways for some time to consolidate the gains of the past four months, further upside later in 2016 and next year is a definite possibility.

Merrill Lynch has raised price targets on many of the stocks in its energy and master limited partnership (MLP) coverage universe, even on the stocks not rated Buy. We screened the list and found three rated Buy that look very attractive now.

Anadarko Petroleum

This top stock is still down a stunning 52% 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; the deepwater Gulf of Mexico; and in Mozambique, Algeria, Ghana, Brazil, Colombia, Côte d’Ivoire, Kenya, Liberia, New Zealand and other countries. As of December 31, 2014, it had approximately 2.9 billion barrels of oil equivalent of proved reserves.

Anadarko investors receive a miniscule 0.38% dividend. The Merrill Lynch price target was raised from an already big $85 to $95. The Thomson/First Call consensus price objective is much lower at $64.39. Shares closed most recently at $55.51.

Magellan Midstream Partners

This is a top midstream MLP company that checks in high on the distribution list. Magellan Midstream Partners L.P. (NYSE: MMP) primarily transports, stores and distributes refined petroleum products and crude oil. The partnership owns the longest refined petroleum products pipeline system in the country, with access to nearly 50% of the nation’s refining capacity, and can store more than 95 million barrels of petroleum products, such as gasoline, diesel fuel and crude oil.

The company sports a BBB+ credit rating from S&P, and the outlook is listed as stable. One main reason for the very positive ratings is that almost 85% of Magellan Midstream’s operating margin is protected by long-term, fixed-fee contracts, meaning that its cash flow is not just recurring but is highly predictable and also largely immune from energy prices. This helps to keep the distribution safer.

Magellan investors are paid a 4.67% distribution. The Merrill Lynch price objective moves to $79 from $75, while the consensus price target s $77.18. Shares closed Tuesday at $75.45.

RSP Permian

This company was one of the production growth leaders in the last half of 2015 and into 2016. RSP Permian Inc. (NYSE: RSPP) is an independent oil and natural gas company focused on the acquisition, exploration, development and production of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin of West Texas. The vast majority of the company’s acreage is located on large, contiguous acreage blocks in the core of the Midland Basin, a sub-basin of the Permian.

The company caught a string of upgrades from top Wall Street companies during the spring, and many have pointed to the possibility that the company may very well be a potential takeover candidate.

The Merrill Lynch price target was raised to $41 from $35, while the consensus figure is at $37.90. The stock closed Tuesday at $35.04.

These three outstanding companies continue to be favorites across Wall Street. Again, it is important to remember that the distributions from the MLPs may contain return of capital.