Energy

Why Stifel Is Raising Price Targets on 5 Top Permian Stocks

Lee Jackson

Published: April 2, 2018 9:10 am

Last Updated: January 12, 2020 1:52 am

The new level for acreage prices in the Permian Basin of West Texas and New Mexico was raised last week when RSP Permian Inc. (NYSE: RSPP) exploded on Wednesday on news that Concho Resources Inc. (NYSE: CXO), was buying the exploration and production company in an all-stock transaction worth a tidy $9.5 billion. The deal price, which includes $1.5 billion in debt, is expected to close in the third quarter of this year, pending regulatory approval. It was reported that the deal already was unanimously approved by both boards of directors.

The purchase will make Concho the biggest shale oil and natural gas producer in the Permian Basin. The company said it would have the area’s largest drilling and hydraulic fracturing operation, 27 rigs, and a reach of 640,000 acres.

It looks as though the analysts at Stifel are taking a cue from the acquisition as they are raising price targets on some of the biggest players in the Permian Basin. We spotted five top companies rated Buy at the firm in which the analysts are moving the targets.

Cimarex Energy

This is a top play for investors looking to the Permian Basin. Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States.

The company is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions.

Cimarex has a diversified base of high-quality production and attractive drilling opportunities. It should be noted that hedge funds have initiated sizable new positions in the company over the past year, and like its brethren in the Permian, many consider the company a very solid takeover target.

Cimarex investors are paid a small 0.3% dividend. The Stifel price target for the stock was raised to a stunning $201 from $185. The Wall Street consensus price target was last seen at $142.73. The shares closed most recently at $93.50 apiece.

Concho Resources

This company is buying RSP Permian, and while pricey, most on Wall Street like the deal. Concho Resources is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.

It 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 from $195 to $200. The posted consensus target is at $181.85, and the shares closed out last week trading at $150.33.

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Diamondback Energy

This is a top Permian Basin play for more aggressive accounts and is a top pick across Wall Street. 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 in West Texas.

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.

The $149 Stifel price target was raised to $167, while the consensus target for the shares is $155.24. The stock closed most recently at $126.52 a share.

EOG Resources

This leading energy company shows up well on many Wall Street screens. EOG Resources Inc. (NYSE: EOG) is one of the largest independent exploration and production companies operating in the United States, Canada, Trinidad, the United Kingdom and China.

The company has a big well in Loving County in the Delaware Basin. Top analysts say the well ranks as one of the best they have ever seen in the basin, and it could easily impact other companies drilling in the region. EOG’s average dollar gross per well on a yearly basis is a stunning $4.3 million, which ranks third among all operators.

Shareholders of EOG are paid a small 0.62% dividend. The Stifel analysts raised their $134 price target to $149, and the consensus price target is $125.11 per share. The stock closed trading on Thursday at $105.27.

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Pioneer Natural Resources

Many Wall Street analysts love this stock for a pure crude oil play. (NYSE: PXD) operates a modern fleet of more than 24 top performing drilling rigs throughout onshore oil and gas producing regions of the United States and Colombia. Pioneer production services are supported by 100 well-servicing rigs, more than 100 cased-hole, open-hole and offshore wireline units, and a range of advanced coiled tubing units.

Pioneer is a huge player in the Permian Basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second-largest oil reservoir in the Midland Basin. With a stellar balance sheet, the company is poised to remain a top player in the Permian as it expects to deliver solid production growth in 2018 and beyond.

The company’s unmatched depth of low-cost inventory and balance sheet allow it to compete favorably in both mild and moderate recovery case scenarios. In addition to asset and financial strength, many analysts feel that Pioneer offers the second highest multiple contraction among the large-cap Permian pure-play peers, as well as the highest free-cash-flow yield.

Pioneer investors are paid a tiny 0.05% dividend. The whopping new $313 Stifel price target was previously $280, while the consensus price figure is down at $219.42. Note that Pioneer closed trading most recently at $171.78.

These five top stocks to buy that all make good sense for investors looking to add energy, especially companies with Permian Basin exposure, considering that they also could be takeover candidates. The recent selling is offering some timely entry points for investors with a long-term horizon.