The price of oil has bounced around quite a bit over the past 90 days, generally staying between $65 and $74 a barrel. The good thing for most energy exploration and production companies is that they make solid money at those levels, and the benchmark price doesn’t weigh too hard on the economy. With earnings for many of the top companies right around the corner, and the stock prices much lower than earlier this year, now may be a good time to add some shares.
In a recent report, Stifel remains reasonably positive on the prospects for the companies in its energy coverage oil and gas production universe. The report said this:
We expect investors to maintain a relatively positive view on the sector. Over the last two months, we have held meetings and conference calls with ~80 investors across the U.S. The investor base was composed of dedicated mutual funds (~25%), generalist (~40%) and dedicated hedge funds (~35%). Investor sentiment was decidedly positive on crude prices and broadly constructive on energy stocks with concerns regarding capital discipline and timing being the distinguishing factors between the two. In general, investors were broadly disappointed with the sector’s capital spending plans announced during second quarter 2018 earnings.
Here we focus on five of the larger cap companies covered by Stifel. All are rated Buy, and two already have reported outstanding results, which bodes well for the other three, which are set to report next week.
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.
Investors receive just a 0.80% dividend. The Stifel price target for the stock is a gigantic $179. The Wall Street consensus target is $122.84, and shares closed Wednesday at $79.47. The company is expected to report on November 6.
This year the company bought RSP Permian for $9.5 billion, and most on Wall Street liked the deal as a good bolt-on acquisition. 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.
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.
The company reported strong quarterly earnings on Tuesday but still has a lot of upside to posted price targets. Stifel has a $197 price target, and the consensus target is $187.12. Shares closed Wednesday at $139.09.