August was not a kind month to U.S. crude oil producers. Crude prices dropped by nearly 8% to close the month below $45 a barrel. September got off to an even worse start, touching $43 before closing at $43.16 on Thursday.
Low crude prices absolutely demolish the value of an exploration and production (E&P) company’s proved oil reserves. A price around $45 a barrel raises the value of the company’s reserves by 50% compared with a price of $30 a barrel. And if a company’s shares were undervalued when oil was fetching $30, that does not mean they are overpriced at $45.
Several analysts believe many energy stocks continue to be very smart buys, and the favored companies run the gamut from producers to drilling and services firms to downstream pipeline companies and refiners. Here’s a look at some analysts calls for the week of August 29 through September 2.
TransCanada Corp. (NYSE: TRP) was started with a Buy rating and a U.S. price target of $52 at Merrill Lynch. TransCanada’s American depositary shares (ADSs) closed at $46.69 on Friday, and they have a $49.45 consensus price target and a 52-week trading range of $28.40 to $48.34.
CONE Midstream Partners L.P. (NYSE: CNNX) was started as Buy at Janney with a $22 fair value target (versus an $18.92 Friday close). The firm sees long-term volume growth at attractive valuations.
Pioneer Energy Services Corp. (NYSE: PES), which provides land-based drilling and production services to oil and gas E&P companies, was raised from Hold to Buy at Jefferies with a $6 price target (versus a $3.60 close).
Cimarex Energy Co. (NYSE: XEC), an independent oil and gas E&P firm, was started as Outperform at Wells Fargo. The firm’s valuation range is $145 to $155. Wells Fargo said: “Our valuation range for Cimarex is based on our [net asset value] estimate of $150.68/share. Risks to our range include material, sustained commodity price weakness and failure of exploration upside potential to materialize.” Shares closed at $134.92 on Friday.
Precision Drilling Corp. (NYSE: PDS) was featured this week among RBC’s top drilling stocks with upside. The firm has an Outperform rating and $8 price target. RBC noted that despite the company’s large Canadian exposure, 54% of the firm’s U.S. drilling fleet is located in the Permian Basin. Despite posting a second-quarter loss, the company sees customers starting to ramp up. The consensus price target was $5.50, and the stock closed Friday at $4.32.
Other key calls were seen as follows last week:
- Barclays raised its price targets on Pioneer Natural Resources Co. (NYSE: PXD) from $175 to $190, on Devon Energy Corp. (NYSE: DVN) from $45 to $50 and from $16 to $18 on Marathon Oil Corp. (NYSE: MRO).
- Goldman Sachs raised its price targets from $49 to $50 on Marathon Petroleum Corp. (NYSE: MPC) and from $98 to $101 on Tesoro Corp. (NYSE: TSO).
- Stifel lifted its price target on Pioneer Resources from $177 to $215 and has a Buy rating on the stock.