Analyst Raises Targets on Red-Hot Permian Basin Energy Stocks

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One thing became very clear over the six weeks or so that the spot price of oil plummeted earlier this summer. Analysts across Wall Street remained very positive on exploration and production companies that are doing the lion’s share of their drilling in the Permian Basin in West Texas. While many remain very cautious on the overall sector due to the oil pricing volatility, focusing on the best stocks in the best areas looks to be a good plan for investors seeking energy exposure.

In a new report, the energy team at Deutsche Bank also remain cautious. The analysts point to some lingering concerns that producers, regardless of where they are or the state of their finances, are pointing toward higher activity levels and pushing break-even economics lower. The analysts feel that while production should remain way below the 2012-2014 levels, further efficiency gains tilts the equity outlook slightly positive.

We focus on the stocks in the Permian in their coverage universe, and the following three are rated Buy and get big price target boosts.

Concho Resources

Besides being one of the top energy plays in the Permian Basin, this is also 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.

Earlier this year 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.

The company posted solid quarterly results that beat estimates as production came in above the high end of guidance and costs surprised to the downside. The Southern Delaware basin showed good performance during the quarter.

The Deutsche Bank price target was raised to $150 from $140, while the Wall Street consensus target is $138.01. Shares closed on Wednesday at $128.50.