Despite Caution, Deutsche Bank Raises Prices on Some Top Energy Stocks

March 24, 2016 by 247lee

It never fails. Just about the time that some on Wall Street started to call for $20 oil, it reversed and traded up almost 50%. While some of the move was short covering and macro driven, some of it is because of declining production and demand.

In a new report, Deutsche Bank analysts say that while there are a few red flags that suggest caution, $40 a barrel oil never looked so good and the near-term momentum looks to be positive.

The Deutsche Bank team did some work on the firm’s coverage universe, and many of the top stocks that the analysts have rated Buy got a boost in the price target. We screened those stocks and found four that make good sense for aggressive accounts looking to add energy.

Concho Resources

This is one of the top energy plays in the Permian Basin in West Texas, and it is a Wall Street favorite. Concho Resources Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.

The company recently announced three separate transactions that enhance its position in the southern Delaware Basin, high grade the company’s portfolio and reduce net debt:

  1. It agreed to acquire approximately 12,000 net acres complementary to its core North Harpoon prospect in Ward and Reeves Counties, Texas, from a private operator for total consideration of approximately $360 million, through a combination of common stock, cash and drilling carry.
  2. Concho Resources completed an acreage exchange with Clayton Williams Energy, consolidating 21,000 net non-operated acres into a concentrated, operated position adjacent to the Concho’s Big Chief prospect in Reeves County.
  3. The company also agreed to sell 14,000 net acres in Loving County, Texas, for cash proceeds of $290 million.


The aggregate impact of these transactions is neutral to Concho’s 2016 capital and production outlook.

Deutsche Bank raised its price target for the stock to $125 from $115. The Thomson/First Call consensus target price is $112.91. The stock closed Wednesday at $101.54 per share.

Diamondback Energy

This remains another favorite of Wall Street analysts and is another top Permian Basin play. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin. Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.

Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.

The company also raised capital recently by pulling off an equity secondary offering. The company sold a total of 4 million shares at $56.50, which should help it continue to fight through the continued price woes.

The Deutsche Bank price target was lifted to $94 from $90. The consensus price objective is set at $84.29. The shares closed Wednesday at $76.70.

EQT

EQT Corp. (NYSE: EQT) is expected to have a stunning 95% or more of its production come in as natural gas. This may prove huge for investors if another ruthless summer shows up, which some are now predicting. The company’s superior cost structure and above-average growth may help it exploit stable and rising natural gas prices. With an increasing reserve structure and a projected higher number of Marcellus wells to be drilled in the coming five years, the company exhibits industry-leading organic growth momentum.

The company reported solid earnings back in February and has reduced its exploration and production capital spending by $100 million to $1.8 billion, owing to reduced well costs. The cut in capital spending will result in reduced level of activity and is likely to hamper earnings in the upcoming quarters. With that noted, EQT remains a top low-cost producer with a strategic midstream presence. The superior cost structure and above-average growth may ease concerns about struggling natural gas prices.

EQT investors are paid a tiny 0.2% dividend. Deutsche Bank raised the price target to $79 from $74. The consensus target is at $73.08. The stock closed Wednesday at $63.05.

RSP Permian

This company was one of the production growth leaders in the last half of 2015. RSP Permian Inc. (NYSE: RSPP) is an independent oil and natural gas company focused on the acquisition, exploration, development and production of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin. The vast majority of the company’s acreage is located on large, contiguous acreage blocks in the core of the Midland Basin, a subbasin of the Permian.

The company was recently upgraded to Buy at Goldman Sachs, and we reported recently that the white glove investment bank feels that the company is one of four top picks for $35 oil.

Deutsche Bank lifted its price target to $34 from $30, and the consensus estimate is lower at $31.76. The stock closed Wednesday at $28.01 a share.


These four top companies are well-liked across Wall Street. They all have the potential for solid moves higher when the price of oil starts to finally rebound on a consistent basis. Investors need to look for a sustained move through the $40 price level. Closing above that level consistently will break the longer term downtrend and signal higher prices could be on the way.