Energy

Merrill Lynch Stays Bullish on Oil and Gas Leaders, Even as Trump Tweets Oil Is Too High

Jon C. Ogg

Published: February 25, 2019 1:50 pm

Last Updated: January 31, 2020 12:17 am

Apparently, President Donald Trump can still influence the price of oil with a mere tweet. Crude oil was last seen trading down $2.10 at $55.16 per barrel, a drop of 3.7%. On Monday, the @realDonaldTrump tweet said: “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!”

Crude prices are subject to many market factors. Many of those factors are not at all under the control of the United States. Still, the price levels of today are far lower than they were in 2018 when oil was at $75 at the start of October.

Doug Leggate, an analyst for Bank of America Merrill Lynch, believes that the changes in the energy sector should mean that U.S. energy stocks can still pay off for investors. The firm has multiple Buy ratings and its price objectives are generally significantly higher than the current share prices. This bullish outlook assumes a deck of $60 per barrel on West Texas Intermediate crude and $65 for Brent Sea crude.

A weekend research report published on Monday from Leggate and his team of analysts at Merrill Lynch reiterated the Buy rating on Anadarko Petroleum Corp. (NYSE: APC) with a price objective of $80. Anadarko shares were last seen trading up almost 1.5% at $44.33 on Monday.

Concho Resources Inc. (NYSE: CXO) also was reiterated as Buy, with a $155 price objective. That is based on a finite timeline to delivery that is supported by its core NAV. Shares of Concho Resources were trading up 1.5% at $107.60 on Monday afternoon.

Devon Energy Corp. (NYSE: DVN) is also a Buy, with a $47 price objective, and with its multiples based on a finite timeline to delivery that is also supported by its core NAV. Shares of Devon Energy were down 0.4% at $29.52.

Exxon Mobil Corp. (NYSE: XOM) is rated as Buy at Merrill Lynch, which also has a $100 price objective. The shares were barely higher, up 11 cents, at $78.53. The consensus target price is $84.27.

Hess Corp. (NYSE: HES) was also reiterated as Buy at Merrill Lynch. The firm sees strength from maintenance being in full swing and record crude exports as being positive for oil and refiners as the “Shale 2.0” move looks real. The shares were down 0.8% at $37.97.

Marathon Petroleum Corp. (NYSE: MPC) is rated as Buy with a $95 price objective. This was said to be based on an assessed cash flow value of it its refining and retail segments by treating the assets as annuities after stripping out the maintenance capital plus the market value of interest in publicly traded midstream businesses. Shares of Marathon were trading down 0.5% at $64.66.

ONEOK Inc. (NYSE: OKE) was reiterated as Buy with a $67 price objective ahead of the earnings report due on the same day. The firm sees management providing 2019 guidance, updates on growth projects and color on the impact of commodity prices. Its shares were down 0.5% at $67.46 in midday trading on Monday.

Occidental Petroleum Corp. (NYSE: OXY) is rated as Buy with an $85 price objective, with the firm noting a sum-of-the-parts analysis and a finite timeline to delivery that are supported by its core NAV. Occidental Petroleum was up 0.2% at $66.08 per share.

Valero Energy Corp. (NYSE: VLO) was reiterated as Buy and the price objective is $126. This is after treating its assets as annuities after deducting maintenance capital and using a long-term Gulf Coast 321 crack spread assumptions of $14 per barrel. Valero’s shares were down less than 0.2% at $85.10.

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Encana Corp. (NYSE: ECA) has seen its shares rise 19% so far in 2019, outperforming its peers by about 500 basis points. That said, Encana shares have underperformed peers by over 20% since the NFX deal announcement last November. Merrill Lynch has a Buy rating and $11 price objective on Encana, almost 60% higher than the prior $6.89 close. The firm noted that Encana’s cube style completions have been an important driver of outperformance in the Permian. In the STACK, the firm expects Encana to be deliberate initially using “skinny cubes” to determine optimal vertical/horizontal spacing while targeting select zones using multi-well pads.