Of all the brokerage firms that can make waves with new sector and market research calls, Goldman Sachs would be considered at the top of the list. After all, Goldman Sachs only caters to institutional investors and to high net worth individuals. So they get to influence where the money goes.
Now Goldman Sachs is raising expectations on the oil sector. This latest call has some serious caveats on timing, but the firm sees a higher floor in oil now and is making key changes in its ratings on oil and gas stocks.
After having initially suggested that oil would be in a downside of $20 to an upside of $40 range, now Goldman Sachs has adjusted its range to a downside of $25 and an upside of $45. That is a second-quarter call, versus the first-quarter call. Does that sound like a screaming call that oil has bottomed out? Goldman Sachs seems to think so.
Goldman Sachs sees the new oil order in its version of the good, the bad and the ugly. Investors need to understand that even at $45 there are still many problems in the oil patch. There will still be bankruptcies, defaults, challenged balance sheets, capex cuts and layoffs. Goldman Sachs now sees a $35 target for the second quarter and is expecting more like $40 in the third and fourth quarters.
Before taking this as a screaming buy consider this: Goldman Sachs did warn that the subsequent price recovery will only be gradual and will go at the same pace as the inventory drawdowns take place. The team’s Damien Courvalin and Jeffrey Currie did warn that investors need to prepare for more choppiness as storage constraints, oversupply and volatile pricing all work simultaneously. Be advised that Goldman Sachs actually thinks oil likely heads lower before it heads higher.
All caveats aside, Goldman Sachs made many key analyst changes in the oil and gas sector on Friday. Some ratings changes are for the better, and some were given outright downgrades. 24/7 Wall St. has focused on the Buy ratings and the upgrades first, with the downgrades following after. Also included at the end of this report is the formal wording of the Goldman Sachs summary.
(NYSE: CVX) was raised to Neutral from Sell with a $94.00 price target. This is up from a $78.00 prior target and versus a $93.94 prior close. It has a consensus analyst target of $95.80 and a 52-week trading range of $69.58 to $112.20. Chevron just this week went out on a limb by maintaining and growing its dividend despite lower capex and lower profits.
Diamond Offshore Drilling Inc. (NYSE: DO) was raised to Neutral from Sell and the price target was raised to $24.00 from $18.00. The consensus price target is $18.70 and the 52-week range is $14.18 to $35.95. The company has a market capitalization of about $3.1 billion.
Oasis Petroleum Inc. (NYSE: OAS) was raised to Neutral from Sell with a $7.25 close (versus a $7.14 close). Oasis has a consensus price target of $7.87. The 52-week range is $3.40 to $18.86, and the market cap is $1.3 billion.
Weatherford International PLC (NYSE: WFT) was raised to Buy from Neutral and the price target was raised to $9.75 from $8.00 (versus a $6.61 close). It has a consensus price target of $9.20 and a 52-week range of $4.95 to $14.91. The market cap is about $5.6 billion.
Royal Dutch Shell PLC (NYSE: RDS-A) was added to the prized Conviction Buy list. The 52-week range is $35.80 to $64.46, and the market cap is around $154 billion.
Total S.A. (NYSE: TOT) was maintained as Buy but was removed from the Conviction Buy list. The stock closed most recently at $45.69. The consensus analyst target is $52.83, and the shares have a 52-week range of $39.05 to $54.79.
Anadarko Petroleum Corp. (NYSE: APC) may have been in the news this week with another 1,000 oil job cuts, but Goldman Sachs raised its rating to Buy from Neutral, and the price target was raised to $58.00 from $50.00, after shares closed at $42.50. The consensus price target is $57.65, the 52-week range is $28.16 to $95.94, and the market cap is $23 billion.