Energy Business

Nomura Picks 6 E&P Companies to Buy Now

Concho Resources carries a $131 target price from Nomura, based on an 8.5-times CFPS multiple applied to its averaged 2017 and 2018 CFPS estimates ($15.37). Downside risks to Nomura’s financial outlook and, therefore, to Concho Resources achieving its target price include: 1) commodity price risk and 2) production risk — the company is well regarded by analysts and investors, and, as such, any disappointments on the production and growth could lead to outsized volatility. Concho traded late Wednesday morning at $103.96, in a 52-week range of $77.22 to $136.10.

Newfield Exploration has a $45 target price, based on a 5.3-times CFPS multiple applied to Nomura’s averaged 2017 and 2018 CFPS estimates ($8.58). Downside risks to Nomura’s financial outlook and, therefore, to Newfield achieving its target price include: 1) commodity price risk and 2) operations risk — Newfield is focusing on its best areas and high-grading operations — subpar geologic results, particularly in the emerging South-Central Oklahoma Oil Province (SCOOP) and Sooner Trend, Anadarko, Canadian and Kingfisher (STACK) plays, could present risks to production growth forecasts. Newfield traded at $34.48, in a 52-week range of $22.31 to $40.27.

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Nomura puts a $174 price target on Pioneer Natural Resources, based on a 10.0-times CFPS multiple applied to the firm’s averaged 2017 and 2018 CFPS estimates ($17.45). Downside risks to Nomura’s financial outlook and, therefore, to Pioneer achieving its target price include: 1) commodity price risk and 2) operational risk — Pioneer has chosen to focus on its best areas and high-grading operations, and subpar geologic results, particularly in the Midland Basin, could present risks to production growth forecasts. Pioneer traded at $120.10 Wednesday morning, in a 52-week range of $105.83 to $209.25.

Regarding Anadarko, Nomura has a price target of $86, based on a 7.0-times CFPS multiple applied to its averaged 2017 and 2018 CFPS estimates ($12.35). Downside risks to Nomura’s financial outlook and, therefore, to Anadarko achieving its target price include: 1) commodity price risk; 2) inventory risk — while Nomura believes that Anadarko’s adept portfolio management and technology will add to medium- to long-term resource inventory, investors will closely monitor type curve sustainability and resource potential to gauge reserve life/future growth, particularly in areas such as the Delaware Basin; 3) exploration risk — the success or failure of exploration wells could change investors’ valuation views; and 4) litigation risk — Anadarko had a working interest in the Macondo well, and ongoing litigation could expose the company to additional liability. Anadarko recently traded at $68.61, in a 52-week range of $58.10 to 108.14.

EOG Resources gets a $93 price target from Nomura, based on a 8.5-times CFPS multiple applied to its averaged 2017 and 2018 CFPS estimates ($10.93). Downside risks to Nomura’s financial outlook and, therefore, to EOG achieving the target price include: 1) commodity price risk and 2) inventory risk — while Nomura believes that EOG’s technology will add to medium- to long-term resource inventory, investors closely monitor type curve sustainability and resource potential to gauge EOG’s reserve life and future growth. EOG shares traded at $78.28, in a 52-week range of $68.15 to $106.09.

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Suncor has a CDN$43 price target, based on a 6.6-times CFPS multiple applied to its averaged 2017 and 2018 CFPS estimates (CDN$6.47). Downside risks to Nomura’s financial outlook and, therefore, to Suncor achieving its target price include: 1) commodity price risk; 2) operations risk — there are timing and cost overrun risks with building out and streaming incremental larger projects (Hebron) and oil sands (Ft. Hills) facilities — to date, Suncor is largely on time and on budget, but delays could negatively affect valuation; 3) downtime risk — given the concentrated nature of Suncor’s oil sands and refining assets, unexpected facility downtime can affect production and cash flows; 4) environmental risk — the oil sands are subject to significant environmental scrutiny, whereby changes in policies and/or rulings can adversely affect oil sands companies; and 5) political risk, given the Alberta government’s current review of its royalty regime. Suncor traded Wednesday morning at $26.74, in a 52-week range of $24.20 to $39.88.