Should Investors Panic Over So Many Whiting Price Target Downgrades?

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Whiting Petroleum Corp. (NYSE: WLL) is one of the top independent crude oil producers in North Dakota. That had been a plus for Whiting, but it is no longer a secret that the oil business has petered out now that oil is back around $40 rather than closer to $100. Many analysts had become quite bullish again on Whiting after the sell-off turned into almost a crash.

Lower than expected oil volumes and oil/natural gas realizations caused Whiting to miss total production estimates. The uptick in drilling activity also brought a higher 2016 capital spending target to $550 million, versus $500 million previously.

Whiting did say it expected third and fourth quarter production to flatten to 115,000 barrels of oil equivalent per day. Its CEO also noted that 58% of its oil production was hedged for 2016 and that 26% of oil production was hedged in 2017.

Thomson Reuters has signaled that Whiting Petroleum’s consensus analyst price target was $13.74 just 30 days ago. Now that earnings are out and analysts have chimed in, that consensus analyst price target is down to $11.89.

24/7 Wall St. wanted to address some of the analyst ratings and price target changes. This stock remains quite controversial for many investors, but the latest earnings almost undeniably have taken out a lot of the return to good days. Oil prices in recent days have not helped matters either.

It was back on July 13 that Credit Suisse raised Whiting Petroleum to Outperform from Neutral. It also raised its price target to $14 from $13 in that call. At that time the firm noted that Whiting’s stock pullback following a recent debt swap had given investors a compelling entry opportunity for this levered crude player. But on July 31 the same firm kept the Outperform rating while cutting its price target to $12 from $14. So now it is more positive than it was before the upgrade but for a lower share price.

Merrill Lynch reiterated its Neutral rating, but they kept its $12 price objective static after earnings. The firm’s investment rationale said:

Whiting stands out as a higher risk way to position for a potential recovery in oil prices. While the company has potential monetization opportunities in its midstream assets, its larger scale provides Whiting with leverage over its service providers. However a largely oil levered portfolio creates exposure to prolonged weakness in the commodity. As such, while we see significant value should the commodity recover, we believe the appropriate rating is Neutral.

24/7 Wall St. pulled several other analyst calls to see what has happened with the price targets:

  • Barclays lowered its price target to $9.00 from $12.00.
  • Canaccord Genuity has a Buy rating lowered its price target to $13.00 from $13.50.
  • Deutsche Bank lowered its price target to $9.00 from $11.00.
  • JPMorgan lowered its target price to $8.50 from $10.00.
  • Raymond James maintained an Outperform rating but it lowered its target to $14.00 from $15.00.
  • Wunderlich has a Hold rating and lowered its price target to $7.00 from $11.00.
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GMP Securities was one of the holdouts that did not lower the price target. It reiterated its Buy rating and $16 price target. That firm said:

Whiting Petroleum has meaningful debt leverage, an impactful oil DUC backlog and high quality assets with improving asset productivity – all positive characteristics in an oil recovery scenario. We tend to favor stocks and basins that offer a continuous positive operational rate of change, which we believe the Williston Basin and specifically Whiting have demonstrated through higher intensity completions. Our data suggests this trend will continue as Whiting increases its average proppant intensity. We reiterate our Buy rating and maintain our 12-month price target of $16.00. Our $16.00 price target is based on a 30% discount to net asset value which uses $45 per barrel in 2016, gradually increasing to $70 per barrel in 2019.

Whiting’s $6.41 price on Tuesday is in a 52-week trading range of $3.35 to $22.80. This stock was $7.35 last week before its earnings report. Its shares were between $8 and $9 for most of July, and it was well above $10 for most of June.