Oil may have given back much of the gains made last week in a late-Friday sell-off. Still, many investors and analysts alike are looking for upside in the oil patch now that so many of these stocks and master limited partnerships (MLPs) have seen their stocks gutted.
24/7 Wall St. reviews dozens of analyst calls each weekday, with a goal of finding hidden gems and hidden value potential for its readers. Some analyst calls are on stocks to buy and some cover stocks to sell. What stood after a weekend review about this past week was how many oil and gas calls were made by analysts — particularly in the MLP sector.
We have identified five big upside analyst calls in MLPs, and it is followed by two independent oil and gas players. The top five MLP (or MLP-like) structures featured with very positive calls were Enterprise Products Partners L.P. (NYSE: EPD), Kinder Morgan Inc. (NYSE: KMI), Memorial Production Partners L.P. (NASDAQ: MEMP), SunCoke Energy Partners L.P. (NYSE: SXCP) and Targa Resources Partners L.P. (NYSE: NGLS). Two non-MLP oil and gas calls were independent production companies Diamondback Energy Inc. (NASDAQ: FANG) and Rice Energy Inc. (NYSE: RICE).
These are the top MLP and oil and gas analyst calls we saw from last week.
Enterprise Products Partners L.P. (NYSE: EPD) was raised to Buy from Hold at Jefferies on Monday. The firm gave a $36 price target for the MLP, versus a $32.17 closing price on the previous Friday and versus a $32.40 close last Friday. This still leaves an implied upside of 11%. On top of that, there is the 4.6% distribution to consider, for the total return of more than 15% in implied gains. For whatever it is worth, the consensus price target is even higher than the Jefferies target.
Kinder Morgan Inc. (NYSE: KMI) is now a post-MLP corporation, and it is still a widely held stock by MLP funds. It was started as Buy with a $50 price target by Argus on Monday. After closing at $41.27 on Friday, this implies a sharp upside of some 21%, and the $50 target is above the $47.27 consensus target. Then there is also the 4.4% yield to consider, which would give an implied total return above 25%, if Argus is right. The firm likes Kinder Morgan’s chances of (and plans for) higher dividends ahead, its strong asset base and its limited commodity price exposure.
Memorial Production Partners L.P. (NASDAQ: MEMP) was recently named by Merrill Lynch as the firm’s top sector pick, with a $22 price target. The MLP closed at $16.88 on Friday, giving an implied upside of about 30% — plus the 13% distribution. The Merrill Lynch report indicated that Memorial Production Partners is the only name in its high-yield MLP group that does not have to cut its distribution. The team further said that it has robust liquidity, strong hedges and resource visibility. The consensus target price for this $1.4 billion MLP is $19.80, and the highest analyst target is up at $23.
SunCoke Energy Partners L.P. (NYSE: SXCP) was raised to Buy from Neutral at Citigroup on Friday. The price target of $26 left an implied upside for this MLP of almost 25%, even from the $20.83 close on Friday. Then there is the 10% distribution to consider, but that may be high enough that it scares some investors. This is only an $820 million market cap MLP, and the consensus price target is still up just above $30. SunCoke Energy Partners has a 52-week range of $19.20 to $31.99.
Targa Resources Partners L.P. (NYSE: NGLS) was raised to Buy from Hold at Jefferies on Monday. The firm’s $47 price target, versus a $40.23 close on Friday, leaves an implied upside of almost 17% — before considering close to an 8% distribution from this MLP — if Jefferies turns out to be correct. Targa has a $4.8 billion market cap, and the consensus price target now is up above $53.
As mentioned above, the two non-MLP-type structures that were given solid analyst coverage this past week were Diamondback Energy Inc. (NASDAQ: FANG) and Rice Energy Inc. (NYSE: RICE).
- Diamondback Energy was started as Overweight by Morgan Stanley on Thursday. The firm’s $90 price target left an implied upside of almost 20% from the $75.17 closing price on Friday. This $4.4 billion independent oil and natural gas company is focused primarily in the Permian Basin, and the consensus analyst target is $87.17, and the highest target from analysts is $93. Diamondback was raised to Buy from Accumulate by Global Hunter Securities a week earlier.
- Rice Energy was raised to Overweight from Equal Weight at Capital One on Thursday. What stood out was the firm’s target price of $28.00, which implied upside of 33% from the $21.02 closing price on Wednesday, and compared to the $21.01 close on Friday. Rice Energy recently raised $400 million in senior notes, it has a $2.8 billion market cap and corporate insiders have recently bought shares. Rice is an independent natural gas and oil company developing properties in the Appalachian Basin. It has been public for just over a year now, and its 52-week range is $16.04 to $34.34. Rice Energy’s consensus analyst target is $26.35, and the highest target is $33 on this one.