Energy Business

Jefferies Says Buy 3 Large Cap Integrated Energy Stocks Now

When Jefferies analysts raised the stock from Hold to Buy in June, the report noted this:

We upgrade Oxy to Buy from Hold and increase our target price. We believe that the company’s firm transportation commitments leave it well positioned to reap the benefits of what could be a prolonged wide differential between Midland and US gulf coast crude prices. Occidental has firm transportation commitments of 470,000 barrels per day from Midland to the Gulf Coast, about 19.5% of total capacity, which provides full flow assurance on its own Permian production as well as arbitrage opportunity on third party volumes.

Occidental shareholders are paid a very solid 4.06% dividend. Jefferies has a price target on the stock of $98, while the posted consensus target is $96.82. The stock closed trading most recently at $76.93.

Royal Dutch Shell

This company has survived the seesaw in oil pricing as good as or better than any other major integrated. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and natural gas liquids.

Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.

In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

The Jefferies analysts have remained bullish on the company and noted this in a prior report:

We believe Shell has one of the most sustainable business models in the sector, capable of fully funding the dividend with free cash flow when oil prices are at the bottom of the cycle but also generating strong free cash flow in a moderate oil price environment. The balance sheet is on a path to reach 20% net debt/capitalization in 2018, and we expect the company to begin repurchasing shares in the second half of 2017 with a target of $25 billion in total repurchases through 2020. Shell’s well-covered dividend remains the highest in the sector.

Investors in Royal Dutch Shell are paid a huge 5.14% dividend. The $87 Jefferies price objective compares with the posted consensus figure of $81.01. The shares closed Wednesday’s trading at $62.23 apiece.

Three of the biggest and best companies in the energy sector, many of which have all taken a good hit recently, and all are well liked on Wall Street. Paying good dividends and distributions, they make sense for long-term growth portfolios that also value consistent income and seek energy exposure.