The stock market finally has been reminded that volatility can return after weakness was seen on Friday, finally breaking the streak with 1% drops. Crude oil has recovered handily from its lows earlier in 2016, but Friday’s weakness had oil back under $47 per barrel for West Texas Intermediate crude. The reality is that this is now a risk-on price again for the larger players oil industry. Just keep in mind that many oil companies still cannot operate with much profitability.
Investors have shown time after time that they want to buy stocks either on pullbacks or when they can be opportunistic. August was not a kind month to crude oil producers, but the week of September 10 was mostly positive for the oil patch.
24/7 Wall St. tracks many analyst upgrades and downgrades, and many of these are in companies which are well known in the oil and gas sector. The week of September 9 brought numerous analyst upgrades and downgrades in oil and gas stocks. Some analysts believe many of the energy stocks continue to be very smart buys, based on values or catalysts.
The consideration here is that some investors wanted to bottom fish when oil was fetching only $30 per barrel, so with $50 in sight again they might be much more aggressive. Just keep in mind that these price targets and upside projections will look rather silly if oil drops back into the $30s again. While these are five stocks to buy, we have actually featured six analyst upgrades. Here are the energy stocks with major analyst calls from the week of September 5 to September 9, 2016.
Apache
Now Apache Corp. (NYSE: APA) may be sitting on a new and massive 3 billion barrel oil discovery. The stock was far less weak than the broader market on Friday, and the news sent shares up more than 10% about its new major discovery in Texas. Several analyst calls drove shares higher: Capital One Securities raised its target price to $60, Deutsche Bank raised its target to $57, Morgan Stanley raised its target to $63, Raymond James raised its target way up to $72 and RBC raised its target to $62.
Credit Suisse maintained its Neutral rating but its $67 target offers implied upside that is nearly $10 higher than the $57.26 consensus analyst price. Credit Suisse said:
With limited well results from Apache in the Alpine High, and due to the ongoing delineation process skepticism is natural. However the key data released on Wednesday deserve another report. The key point inside is that the low clay content and excellent porosity is why the rocks are so productive in a lower pressure and hence lower cost environment – which in turn is why the economics look so compelling. We ran the lower pressure type curve yesterday in our model with a more conservative cost per well to derive our $4.00 per share uplift.
Enbridge (and Spectra Energy)
When Enbridge Inc. (NYSE: ENB) and Spectra Energy Inc. (NYSE: SE) merge, they will create the largest energy infrastructure player in North America by enterprise value. 24/7 Wall St. showed definitively that analysts are largely in favor of this combined company. Goldman Sachs raised Enbridge to Buy with a $48 price target. Spectra Energy, the company being acquired, was downgraded to Outperform from Strong Buy with a $44 price target at Raymond James. Enbridge’s American depositary shares were last seen at $44.53, and Spectra Energy shares closed at $42.80 on Friday.
Callon Petroleum
While Callon Petroleum Co. (NYSE: CPE) may have been down on Friday with a weak market, the week brought several positive research notes. Its shares were raised to Outperform from Sector Perform at RBC Capital Markets and its price target was raised to $18 from $15 (versus a $15.46 prior close). The price target was raised at FBR Capital to $19 from $17, and the firm KLR raised its target price to $21 from $18 on the same day. The stock closed down more than 3% at $15.02 on Friday. It has a 52-week trading range of $4.21 to $15.91 and a consensus price target of $16.77.
Chesapeake Energy
Wunderlich raised Chesapeake Energy Corp. (NYSE: CHK) to Buy from Hold with a $10 price target (versus a $7.74 close) on September 9. The firm sees Chesapeake as having a better financial position and having maintained strong operations during the oil and gas crash. Additional catalysts were also cited for more upside. Chesapeake shares were down 1.5% at $7.62 on Friday’s close. The consensus price target is $5.45 now, and the 52-week range is $1.50 to $9.55. Keep in mind that this upgrade follows a massive recovery, and we have outlined the driving force pushing its shares higher.
ConocoPhillips
This might not feel like the biggest analyst upgrade in the world. On September 7, Jefferies raised ConocoPhillips (NYSE: COP) to Hold from Sell, and the firm’s price target was lifted to $40 from $37. That was versus a $41.00 prior close, and ConocoPhillips shares ended the week at $42.55. The Jefferies upgrade was a valuation call based on ConocoPhillips being one of the most aggressive cost cutters in the sector, and the firm thinks it can maintain its cash cycle at $49 per barrel in oil. What matters here is that the consensus price target was $52.00 on Friday, a tad higher than in prior weeks. ConocoPhillips had a 52-week range of $31.05 to $57.24.
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