By Eric Chenoweth of Morningstar
The energy sector has some key players trading at a discount to a longer-term fair value. Morningstar highlights this with new updated price targets in the energy patch, and some of the highlighted stocks are Spectra Energy Corp. (NYSE: SE), Range Resources Corp. (NYSE: RRC), Devon Energy Corp. (NYSE: DVN), and ExxonMobil Corp. (NYSE: XOM). The targets are quoted:
- While the current outlook for supply/demand fundamentals favors oil, we believe that higher full-cycle shale gas extraction costs and potential fuel price arbitrage will better balance the scales with gas in the longer term.
- However, in the near term, we are cautious on smaller E&P firms with high operating/financial leverage as they may struggle to weather temporarily depressed gas prices and/or potentially higher interest rates during the next 12-24 months