Energy Business

RBC Has 4 Energy Best Idea Stocks to Buy Now

Patterson-UTI Energy

This company could see meaningful business coming from Canada this year. Patterson-UTI Energy Inc. (NASDAQ: PTEN) is the second largest land driller in North America and a large pressure pumping provider. Its operations are particularly focused in the Marcellus and in Texas.

Patterson-UTI and its subsidiaries operate land-based drilling rigs in oil and natural gas producing regions of the continental United States and western Canada. Universal Pressure Pumping, and Universal Well Services provide pressure pumping services primarily in Texas and the Appalachian region. For three months ended September 30, 2017, the company had an average of 161 drilling rigs operating.

Investors receive a small 0.4% dividend. RBC has a $29 price objective, and the consensus figure is $24.63. The shares traded at $20.65 on Wednesday.

RSP Permian

This was another recent addition to the RBC Global Energy Best Ideas list. RSP Permian Inc. (NYSE: RSPP) is an independent oil and natural gas company focused on the acquisition, exploration, development and production of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin of West Texas. The vast majority of the company’s acreage is located on large, contiguous acreage blocks in the core of the Midland Basin, a subbasin of the Permian Basin.

The company caught a string of upgrades from top Wall Street companies last year and many have pointed to the possibility that the company may be a potential takeover candidate. Historically a vertical producer, the company has been transitioning to horizontal drilling the past few years. RSP Permian has conducted five acquisitions since its initial public offering in early 2014 and currently has 1,700 horizontal locations across eight prospective zones.

An RBC report noted:

RSP Permian trades in line (EV/EBITDA) to Permian peers but has one of the best debt-adjusted production growth outlooks in the peer group. The company’s margins are also amongst the top in the industry. There is visibility for over 30% growth in 2018 at cash flow levels assuming at least $55 per barrel. However, we think the company will be proactive and target near cash flow neutrality and remain disciplined if oil prices remain below $50/bbl. We see further upside to our valuation through improving capital efficiency in the Delaware and expanding resource potential in the Midland.

The RBC price target is $43. The consensus target is $44.54, and the stock was trading at $34.40 a share.

These four top companies that all have decent upside to the RBC price targets. With earnings reports coming up, it may make sense to buy partial positions now and wait for the results before adding additional shares.

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