Energy

Wall Street Analysts Are All In on Energy as Oil Plows Through $70

Lee Jackson

Published: May 12, 2018 9:40 am

Last Updated: January 11, 2020 11:43 pm

What a week it was for the long-suffering energy investors. As expected, the president reinstated full sanctions on Iran while departing the Iran deal, which many felt was not in the best interest of the United States and its allies. Either way, with the risk premium in the Middle East back on the table, and the worldwide glut of oil almost eliminated, when you add in surging demand you have all the tailwinds needed to push energy stocks higher.

Many of the top brokerage firms and banks that we follow here at 24/7 Wall St. have come out over the past month with increasingly bullish stances on the energy sector, with many of those analysts raising price targets on the stocks rated Buy at their firms.

We screened our recent coverage for the top energy and oilfield services stocks and found eight that Wall Street is very positive on going into the summer.

Anadarko Petroleum

This top company is still down a stunning 30% from highs printed in 2014, the last time oil traded at $70. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate, and natural gas liquids (NGLs). The other segments are Midstream and Marketing.

The company reported impressive first-quarter results, and Merrill Lynch said this when covering the earnings:

Adjusted earnings per share of $0.52 beat consensus of $0.40 on lower DD&A and strong oil production that topped guidance led by the US onshore. Half of Permian production is exposed to basis in 2018, but Enterprise and Cactus 2 should leave the company fully covered by 2019. With oil prices at current levels we believe Anadarko can reload share buybacks after the program concludes by mid year.

Anadarko Petroleum shareholders are paid a 1.48% dividend. Merrill Lynch recently raised its price target to $95 from $87. The Wall Street consensus price objective was last seen at $74.87. The stock closed trading on Friday at $68.31 per share.

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.

SunTrust has a price target on the stock of $165, while the posted consensus target is $156.67. The shares closed at $123.82 on Friday.

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Energen

This lesser known company is a solid play for those looking for Permian Basin exposure at a reasonable price. Energen Corp. (NYSE: EGN) is a pure-play Permian operator with 147,000 net acres in the basin. The majority of its development activity targets the Midland and Delaware Basin, where the company holds 87,000 and 60,000 net acres respectively. Energen also holds an 84,000 net acre position in the Platform area where minimal capital investment is expected.

Top analysts feel that Energen is a rare breed, with strong debt-adjusted growth, inventory depth from a quality and blocky Permian footprint, balance sheet and value. Recent Generation 3 completions show promise for a step-change in well productivity, and none of that appears baked into guidance or street estimates.

The $85 SunTrust price target compares with the $74.85 consensus estimate. The stock closed most recently at $67.18 a share.

Enterprise Products Partners

This is one of the top players in the beat-up energy master limited partnership arena. Enterprise Products Partners L.P. (NYSE: EPD) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, NGLs fractionation, import and export terminaling, and offshore production platform services.

One reason why many analysts may like the stock might be its distribution coverage ratio. That ratio is well above one-times, making it relatively less risky in its sector. The company’s distributions have grown for several quarters, and last year Enterprise Products announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.4225 per common unit, or $1.70 on an annualized basis.

Investors are paid a very solid 6.27% distribution. The RBC price target for the stock is $34, and the posted consensus target is $31.17. Shares ended the week trading at $27.27 apiece.

Exxon Mobil

This remains a top Wall Street energy pick and is on the US 1 list at Merrill Lynch. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

Recently, Exxon announced estimated first-quarter 2018 earnings of $4.7 billion, or $1.09 per share assuming dilution, compared with $4.0 billion a year earlier. Cash flow from operations and asset sales was $10 billion, including proceeds associated with asset sales of $1.4 billion.

During the quarter, the corporation distributed $3.3 billion in dividends to shareholders. Capital and exploration expenditures were $4.9 billion, up 17 percent from the prior year.

In addition, the company recently raised its dividend by a nickel to $0.82 per share, which now translates to a nifty 4.2% dividend.

Merrill Lynch has set its price objective at $100. The consensus target price is much lower at $85.45, and the stock closed most recently at $81.28.

Halliburton

This stock is still down over 20% from highs printed in January, and it remains a top large cap oil services pick at RBC. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.

The company posted solid fourth-quarter results that topped analysts’ estimates, driven by better pricing and increased activity in every reporting region. Earnings per share beat the highest consensus estimates on robust review, with particular strength internationally.

Halliburton shareholders are paid a 1.37% dividend. The whopping $65 RBC price target compares with the consensus target of $61.24, as well as the most recent close at $52.28 a share.

Patterson-UTI Energy

This remains a top oil services pick across Wall Street. 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 the three months ended September 30, 2017, the company had an average of 161 drilling rigs operating.

The company remains the fifth largest Pressure Pumper with a 1.5 million HHP frac fleet (currently 83% utilized) with exposure to ancillary rental equipment business through Great Plains Oilfield Rental. The recent acquisition of MS Energy (directional drilling) complements its contract drilling business and provides attractive growth opportunities for investors.

Investors are paid a small 0.4% dividend. The RBC price target is $34. The posted consensus price objective is just $25.53, and the shares closed Friday’s trading at $22.59.

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Schlumberger

This top oil services company is expected to benefit from increased exploration and production spending, and it is also a member of the Merrill Lynch US 1 list. Schlumberger Ltd. (NYSE: SLB) is the world’s largest provider of services and equipment used in drilling, evaluation, completion, production and maintenance of oil and natural gas wells. Revenues in 2017 totaled $30.4 billion, and EBITDA was $6.9 billion.

The company operates in the oilfield service markets through three groups: Reservoir Characterization, Drilling and Production. Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. These include WesternGeco, Wireline, Testing Services and Schlumberger Information Solutions.

Shareholders of Schlumberger are paid a solid 2.88% dividend. Merrill Lynch has a $75 price objective. The consensus target price is higher at $79.72, and the stock was last seen trading at $71.08 apiece.

Eight top stocks to buy from different energy subsectors that all make sense for accounts looking to add energy exposure. With the busy summer driving and energy season right around the corner, now is a good time to consider adding positions.