Bigger isn’t always better, and sometimes when a sector is very volatile like energy, smaller is possibly a way to be much more nimble. In a new report, Cowen starts coverage on small and midcap energy exploration and production (E&P) companies, and it may have found some stocks with solid upside potential.
With the just announced deal with Iran a potential game changer in supply, the Cowen report asserts that E&P stocks are generally anticipating a faster rebound in the price of oil than the current oil futures curve is predicting. They dug deep looking for companies with low capital intensity and the ability to produce strong margins.
The Cowen report highlighted three top pick stocks to buy, and we added one additional stock that Wall Street is very positive on. All are rated Outperform.
This is Cowen’s top pick, and the stock may offer outstanding upside potential. PDC Energy Inc. (NASDAQ: PDCE) is a domestic independent exploration and production company that produces, develops, acquires and explores for crude oil, natural gas and natural gas liquids, with primary operations in the Wattenberg Field in Colorado and in the Utica Shale in southeastern Ohio. The Wattenberg Field operations are focused on the liquid-rich horizontal Niobrara and Codell plays, and the Ohio operations are focused in the condensate and wet gas portion of the Utica Shale play.
The company reported solid first-quarter numbers that highlighted a big increase in overall production. The Cowen team stresses that investors seemed to be worried about the company’s hedge book, which rolls off in 2017. They feel if oil rebounds to around the $70 level by then, that much of the current concern will prove unwarranted. They also cite the company’s capital efficiency, which ranks in the top quintile of Cowen’s coverage universe.
The Cowen price target for the stock is a very hefty $76. The Thomson/First Call consensus price target is $69.09. The stock closed Tuesday at $50.95. Trading to the Cowen target would be over a 50% gain for investors from current levels.