Oil and the energy sector has been a fickle mistress in recent years. After soaring to over $100 a barrel, the black gold then proceeded to come crashing back to earth in the mid-$20s, all in the past three years. After trading sideways for the better part of 2017, the price seems to have finally stabilized. With global demand increasing, and U.S. exports growing, the investment thesis looks much better for investors.
In a mammoth new report, Jefferies initiates coverage on some of the top U.S. exploration and production companies. Analyst Mark Lear is very bullish on the long-term potential for the shale arena and notes in the report he feels there are a massive 100 million barrels of oil resources that break-even at $50 or lower. This bodes well for the top companies, which have worked to lower costs and maximize production.
Five companies are touted as the analyst’s top picks. Most have big exposure to the Permian and dominate the lower end of the cost curve.
This Wall Street favorite is one of the top energy plays in the Permian Basin. 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. Its principal operating areas are located in the Permian Basin of southeast New Mexico and West Texas, where it owns 600,000 net acres. The company has 624 million barrels of oil equivalent of proven reserves, of which 57% is classified proved developed and 59% is oil.
The company is targeting to deliver 20% oil production growth this year, while investing within its cash flow, a move that many on Wall Street see as very positive. By carefully managing growth and spending, the company looks to be in position to restart the double-digit production growth next year, while many peers are struggling to generate enough excess cash flow to boost output.
Top Wall Street analysts feel that the company’s debt load is below average, as is the firm’s commodity price sensitivity, both of which are big positives for investors.
The Jefferies price target for the stock is $159, and the Wall Street consensus target is lower at $145.72. The shares traded Friday morning at $134.90 apiece.
This is another favorite of Wall Street analysts and another top Permian Basin play. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin. Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.
Earnings estimates for the company continue to go higher, and many on Wall Street feel Diamondback can deliver total 2017 numbers that come in above current consensus estimates.
Jefferies has a $124 price target, and the consensus target is $121.53. The shares traded Friday at $101.45.