The week of November 28 to December 2 was less robust in the equity markets than in prior weeks since the election, but do not dare tell that to the oil patch. NYMEX Crude went from under $46 on Tuesday to over $49 on Wednesday, when OPEC announced its first major oil production cut in eight years. Crude even closed out the week above $51.50 and is now within striking distance of highs not seen since early this summer.
What really stood out after the OPEC news was that many key brokerage firms made upgrades to the oil patch stocks. Others hiked price targets, even if their ratings were kept the same. 24/7 Wall St. tracked 15 of these key upgrades made after OPEC’s production cuts were announced.
24/7 Wall St. warned its readers this past week that some of these shares may have rocketed up too far too fast with gains of 15% to 30% in a single day. OPEC nations have a history of cheating on their quotas and on not living up to certain cuts. Maybe this time is different, and again the market reaction was more than amazing. One issue that helped drive the belief that this time might be different is that non-OPEC countries (Russia, Oman, Azerbaijan and Mexico) are also committed to participate in the deal.
Before getting into the stock calls, there were many macroeconomic calls and oil price calls made by some of the key firms on Wall Street.
Goldman Sachs pointed out that OPEC’s first production cut in eight years reflects a changed environment for oil producers. Goldman Sachs now sees OPEC’s short-duration cut supported by compelling economics and how the focus on drawing down inventories should reduce price volatility but backwardation could reinforce the lower-for-longer theme. Credit Suisse thinks this OPEC production cut is real and that it will significantly impact 2017 balances and should push oil prices closer to its green “bull scenario” after offshore drillers traded up 15% to 25% on the back of OPECs announced production cut.
Stifel Nicolaus raised its 2017 NYMEX oil price forecast by 10% to $55 per barrel based upon OPEC’s cut. The firm’s 2017 estimate was said to be 6% above the forward strip and 3% above consensus estimates. Stifel had originally been concerned about downside price risks in oil. Cowen now sees U.S. oil producers being poised to boost output by 2% to 4% in 2017 based upon rising prices amid the OPEC deal.
Jefferies said that there will be undoubted skepticism over whether the targets will be fulfilled, but the firm sees the production cuts as a move by oil-producing countries to raise the floor on the crude oil price. Wells Fargo noted that the OPEC cuts likely will put in a floor in oil prices, and the strong share price performance for the offshore sector (10% to 30% rally in two days) has most stocks discounting a strong recovery scenario — which makes stock selection in the group more difficult.
Here are 15 analyst upgrades and price targets hiked seen in the aftermath of the OPEC production cuts. We have also seen some downgrades or cautious calls made, with three noted in particular.
Anadarko Petroleum Corp. (NYSE: APC) was raised to Buy from Hold with a $86 price target at Stifel on December 1. Anadarko shares were last trading at $69.13 on Friday, more or less in line with the price when this call was made, but this was just a $60 stock on Tuesday. The stock has a consensus analyst price target of $74.08 and a 52-week trading range of $28.16 to $71.10. The company has a market cap of over $38 billion.
BP PLC (NYSE: BP) was raised to Outperform from Neutral at Credit Suisse on December 1, and the overseas price target was raised to 500p from 480p (versus 460p before the call) and BP’s American depositary shares were up over 1% at $35.50 after that call’s impact was seen, versus about $33.50 on Tuesday. Credit Suisse noted that BP has a better than expected cash cycle that should squash any doubts about its ability to pay that high dividend. Shares of BP were trading at $35.58 late on Friday, with a consensus analyst price target of $37.29 and a 52-week trading range of $27.01 to $37.28. The company has a total market cap of nearly $116 billion.
Cabot Oil & Gas Corp. (NYSE: COG) saw Ladenburg Thalmann raise its target price to $32 from $30 on December 2, which is significantly higher than the $22.78 price late on Friday. The company has a market cap of $10 billion. Cabot’s shares have a consensus price target of $27.90 and a 52-week range of $14.88 to $26.74.
Chesapeake Energy Corp. (NYSE: CHK) may be more gas than oil, but Ladenburg Thalmann raised its target price to $7.50 from $6 on December 2. This call was far less impressive than some, with Chesapeake Energy shares trading at $7.20 late on Friday, but it was still higher and the stock was closer to $6.25 on Tuesday. It has a consensus price target of $7.46 and a 52-week range of $1.50 to $8.15. The market cap is $6 billion.
Whiting Petroleum Corp. (NYSE: WLL) was raised to Buy from Hold with a $15 price target at Stifel on December 1. Then it also saw Ladenburg Thalmann raise its target price to $15 from $13 on December 2. Whiting Petroleum shares traded at $12.56 on Friday, versus about $9.50 on Tuesday. The company has a market cap of $3.6 billion. The consensus price target is $11.96, and the 52-week range is $3.35 to $15.16.