Merrill Lynch Makes 4 Big Oil Upgrades, Bracing for $60 Oil in 2017

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Merrill Lynch’s Timna Tanners raised Noble Corporation PLC (NYSE: NE) to Neutral from Underweight. The upgrade is based on backlog security, potential refinancing and on valuation. The call also highlights debt refinancing as a potential catalyst as peers have done deals. The firm’s $7.50 price objective remains flat, but that target was based on 10 times enterprise value to EBITDA on what is expected to remain a still-challenged 2018.

Noble was trading down 2% at $6.60 on Tuesday. Its consensus analyst target is $7.83, and its 52-week range is $6.33 to $14.64. Note that this one has been hitting 52-week lows of late, so it is important to remember that weak stocks often remain weak.

Tanners also raised Patterson-UTI Energy Inc. (NASDAQ: PTEN) to Neutral from Underperform, based on the firm’s more positive sector view. The U.S. land drillers can be an early beneficiary of a recovery, yet Patterson-UTI pricing power in both segments remains challenged. The price objective was raised to $22 from $21 in the call.

While the call is for U.S. land drillers being an early beneficiary of a recovery, Patterson-UTI’s Neutral rating is due to its pricing power in both segments remaining challenged. Merrill Lynch’s increased target is after the enterprise value to EBITDA multiple for 2018 expectations was raised to 10 times from 9.5 times.

Patterson-UTI shares were last seen trading up 1.2% at $20.33. its consensus analyst target is only $21.13, and its 52-week range is $10.94 to $22.12.

Merrill Lynch raised Sasol Ltd. (NYSE: SSL) to Buy. Karen Kostanian, the analyst covering this issue, said that the worst has been priced in and she believes that Sasol is levered to the oil price. Its price objective was actually lowered overseas, but that was due to currency and higher potential capital spending. With Sasol’s valuation now below true peers, Kostanian’s report said:

We upgrade Sasol Limited to Buy as we believe that most of bad news on capex, oil price and ZAR is already priced in. We lower our price objective to ZAR430/share on the back of stronger ZAR and higher potential capex. Valuation is now below true peers. We continue to maintain that Sasol is well positioned to weather lower oil prices due to ample reserves and low oil price break-even.

Sasol’s American depositary shares trade in New York and were last seen at $28.27. Its consensus price target is $32.00, and its 52-week range is $21.07 to $34.73.

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