Cowen Starts E&P Coverage With 3 Top Pick Stocks to Buy

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While it seems like the worst is over for the oil patch, the halcyon days of $100 a barrel oil are in the rear-view mirror, and they probably stay there for years. That said, energy demand is increasing, and production is falling, and falling fast. In a new sector initiation, the analysts at Cowen start coverage of exploration and production (E&P) stocks with an eye toward $70 barrel oil starting in 2017 and beyond.

While the Cowen team sees near-term prices hovering between $50 and $65 for the next two years, they also see tremendous opportunity. With the potential for the export ban to be finally lifted, six stocks stand out at Cowen, and these three are the firm’s top picks: Anadarko Petroleum Corp. (NYSE: APC), Pioneer Natural Resources Co. (NYSE: PXD) and Range Resources Inc. (NYSE: RRC). All are rated Outperform.

Anadarko Petroleum

Anadarko Petroleum is not only a top stock to buy at Cowen, but some think the stock is a very possible acquisition target. The company is one of the biggest independent oil and gas producers in the country, with exploration or production work in all major domestic drilling areas, as well as in South America, Africa, Asia and New Zealand.

Some Wall Street analysts feel that with the resolution of Tronox liabilities and the resulting tax adjustments, they expect the Wall Street focus may shift back to the positive underlying operating trends and the potential for further monetization and sell-down of major assets this year. They also think the company could come in higher than current consensus estimates.

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The Cowen team sees the company growing at or above 15% total production from the higher margin portions of its portfolio, which in turn could end up boosting the firm’s West Texas Intermediate (WTI) price realizations. In other words, more oil equals more money.

Anadarko investors are paid a 1.15% dividend. The Cowen price target is an aggressive $119. The Thomson/First Call consensus estimate is at $100.03. Shares closed Tuesday at $93.66. Earnings will be reported on May 4.