With the fourth-quarter earnings season starting to wind down for many top S&P 500 companies, the energy sector is about to release numbers for the fourth quarter. Many on Wall Street are not only excited to see the results but are very anxious for guidance for the first quarter and the rest of 2018. One thing is for sure, U.S. production will continue to ramp up, and if prices can hold above $60 for West Texas Intermediate, the energy sector could be poised for a much better 2018.
In a new research report, Stifel is cautiously optimistic, not only for the quarter but for the balance of 2018. The report explains why:
In preparation for the upcoming Q417 earnings season, we are updating our commodity estimates to reflect strip prices through 2020 and revising our production and capital forecasts to reflect recent discussions with management. In short, we are increasing our aggregate 2018 activity levels, production forecast, cash flow estimates and capital expenditures by 3%, 1%, 10%, and 9%, respectively. For fourth quarter earnings, we believe investors are keenly focused on 2018 industry activity levels, inflationary pressures given the recent increase in commodity prices, project execution in the growth basins and year-end resource updates.
The analysts raised price targets on the companies in their research universe. We screened their preferred stocks, which are biased to the Anadarko and Permian basins, for five that look like they have solid upside potential.
This company has very large exposure to crude oil. Continental Resources Inc. (NYSE: CLR) is primarily a producer of onshore U.S. oil and has positioned itself in two growing hydrocarbon discoveries in the country: 1) the Bakken oil play in Montana and North Dakota, and 2) the SCOOP/STACK in Oklahoma, giving the company good growth opportunities for years to come.
The analysts are very positive on this company and noted this in their report:
Continental Resources’ investment thesis is unmatched, in our view. Investors get core Permian-like acreage at a non-Permian valuation. Of greatest importance, Continental is one of few stocks within our diversified large-cap coverage that offers investors exposure to low cost oil outside of the Permian. We anticipate growing pains in the Permian and believe diversification is important in the high-quality peer class.
The Stifel price target was raised to $71 from $70. The Wall Street consensus target is $59, and shares closed Tuesday at $54.68, down over 4% on the day.
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 analysts like the diversification the company brings:
Concho Resources offers investors a unique combination of investment themes, including valuation, rate-of-change, and resource expansion themes. The company is the largest acreage holder of the publicly traded Permian large-caps and provides investors peer-leading exposure to three of the most impactful catalysts across the Delaware Basin including the Wolfcamp XY, Wolfcamp D and Bone Spring Shale.
Stifel boosted its price target to $195 from $175. The consensus target is $169.54, and shares closed Tuesday at $157.36.