Energy Business

Are Oil Analysts Getting Too Pessimistic With Lower Oil Prices?

The drop in the price of oil has felt monumental considering that the U.S. economy is still holding up well when the world’s growth engine is idling. This may be a welcome event for many consumers, but the drop to under $75 per barrel has drastically changed the landscape for almost all of the oil and gas companies. 24/7 Wall St. noticed that analysts on Wall Street were slow to lower their expectations due to lower oil prices. Now those analysts have chimed in, and the cuts in oil price targets and in the expectations for oil and gas stocks have in some cases been extreme.

A contrarian investor might wonder if perhaps these analysts have simply become too bearish. When oil was skyrocketing to $140, many analysts on Wall Street started building models for how the oil giants’ earnings might look if $100 or $120 oil remained static. So, how do these analysts see big oil stocks now with the potentiality that $100 oil may not be seen again for years by their take?

24/7 Wall St. would warn readers that many firms have different views on this subject. There is not a universal outlook, but the one commonality among the major firms is that they generally see an equilibrium for oil in the coming months and years being much lower than they did just a few months ago. We have included views from firms such as Wells Fargo, Canaccord Genuity, Merrill Lynch, Credit Suisse, Goldman Sachs, and others — and we have taken a look at the key oil and gas stocks as well.

Wells Fargo’s Roger Read lowered his oil targets and expectations for 2015 and beyond. The firm now expects that the 2015 global exploration and production (E&P) capital spending (Capex) will be well below its previous expectations of meaningful growth, but there are expectations for a rebound from current levels that could come as soon as the second quarter for 2015. Wells Fargo listed how it changed its expectations of WTI and Brent per barrel forecasts for the coming years:

  • 2014 WTI down to $94.80 from $96.80, Brent down $101.20 from $103.45
  • 2015 WTI down to $83.25 from $91.50, Brent down $89.25 from $98
  • 2016 WTI down to $87.50 from $93.50, Brent down $94 from $100
  • 2017 WTI down to $86 from $90, Brent down $92 from $96
  • 2018 WTI down to $85 from $90, Brent down $90 from $95

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Chevron Corporation (NYSE: CVX) was recently trading at $116.75 and it has a 3.7% dividend yield. Since oil prices started falling from the 52-week high this summer shares have fallen almost 14%. The stock has a consensus price target of $132.88 and a 52-week trading range of $106.65 to $135.10. Chevron has a total market cap of $223 billion. Wells Fargo’s valuation range for Chevron was lowered to $124 to $136 from a prior range of $130 to $141. Raymond James recently downgraded Chevron to Outperform from Strong Buy with a $140 price target, although that does not feel like much of a downgrade.

ConocoPhillips (NYSE: COP) was recently trading at $72.50. Since oil prices started falling from the 52-week high this summer shares have fallen well over 15%. ConocoPhillips has a consensus price target of $88 and a 52-week trading range of $62.74 to $87.09. It has a total market cap of $89 billion, and it has a 4% dividend yield. Wells Fargo maintained its $75 to $82 valuation range.

Exxon Mobil Corporation (NYSE: XOM) was recently trading at $95.15 and it has a market cap of $403 billion. Its shares have fallen roughly 9% from their 52-week high. The stock has a consensus price target of $101.42 and a 52-week trading range of $86.91 to $104.76. The highest analyst price target is all the way up at $115. Surprisingly, Exxon’s valuation range by Wells Fargo was kept the same at $88 to $96. Raymond James recently downgraded Exxon Mobil to Market Perform from Outperform.

Occidental Petroleum Corporation (NYSE: OXY) was recently trading at $86.90 and shares were down almost 18% from the 52-week high. The stock has a consensus price target of $103.80 and a 52-week trading range of $82.30 to $105.64. Occidental has a total market cap of $67 billion. Wells Fargo’s valuation range for Occidental was lowered to $98 to $104 from $102 to $107. Raymond James recently raised Occidental’s official rating to Strong Buy from Outperform, and gave a $105 price target.