Analyst Updates Top Natural Gas Stock Picks for 2015
Canaccord Genuity’s Karl Chalabala had some very positive things to say about the producers, even while cutting price targets on seven of eight that he follows:
We continue to believe the Street is overly discounting a robust natural gas demand picture led by power generation beginning in 2016 from coal plant retirements, new builds and switching, with demand from industrials along the Gulf Coast and LNG exports as additional demand drivers further out. … [W]e believe the Marcellus will continue to hold its position as the lowest-cost gas basin — thus positioning our coverage names favorably vs. oil-weighted names given current commodity uncertainty/risk-reward. … We reiterate our view that market access out-of-basin and subsequent superior price realizations will drive outperformance and that Southwest Appalachia is infrastructure advantaged in that regard until H2/16.
Chalabala’s favorite stocks are Rice Energy Inc. (NYSE: RICE), Gulfport Energy Corp. (NASDAQ: GPOR) and Range Resources Corp. (NYSE: RRC).
Canaccord also lowered its forecast price of crude oil for 2015 from $88 a barrel to $83 for Brent crude and from $84 a barrel to $76 a barrel for West Texas Intermediate. The firm thinks supply will outstrip demand by more than 1 million barrels a day in 2015.
Here is the full list of the eight companies Canaccord Genuity issued price targets on:
- Antero Resources Corp. (NYSE: AR): old target $70; new target $65
- Cabot Oil & Gas Corp. (NYSE: COG): old target $33; new target $31
- EQT Corp. (NYSE: EQT): old target $96; new target $93
- Range Resources: old target $88; new target $76
- Gulfport Energy: old target $74; new target $55
- Rice Energy: unchanged at $42
- Gastar Exploration Inc. (NYSEMKT: GST): old target $10.25; new target $7
- Rex Energy Corp. (NASDAQ: REXX): old target $10; new target $9
- Magnum Hunter Resources Corp. (NYSE: MHR): old target $7; new target $6
Canaccord Genuity’s forecast for the natural gas market is based in part on new regulations that it expects to force the closure of 60,000 megawatts of coal-fired power generation by the end of the decade; near- to medium-term demand for natural indicated at 1.26 billion cubic feet per day by April 2016 rising to 4.3 billion cubic feet per day by early 2017; and temporary coal-to-gas switching based on fuel pricing.