This year has been a wild ride, as investors in oil and gas experienced plunges in share price values that were unprecedented. When oil goes from $60 a barrel to under $20 in a few months, there is some serious pain that even the best run oil and gas companies cannot navigate without taking some serious damage.
Occidental Petroleum Corp. (NYSE: OXY) was perhaps the poster child for companies with stock prices hammered down almost daily. Its $38 billion acquisition of Anadarko ended up being the poorest-timed major acquisition in the oil patch ahead of oil’s uncanny fall, and now the combined Occidental and Anadarko’s entire market cap is barely $18 billion.
The team at SunTrust Robinson Humphrey has drawn a line in the sand and upgraded Occidental to Buy from Hold and raised its price target to $25 from $13. That compares with a prior $19.67 per share close. That analyst call also included an upgrade for EOG Resources Inc. (NYSE: EOG), which was raised to Buy from Hold with the price target going to $70 from $50. EOG shares had closed at $52.93 ahead of the call, and the team noted that it was one of the most opportunistic large exploration and production companies by materially flexing all operations and finances as appropriate. Other stocks saw their price targets raised in the call as well.
24/7 Wall St. stresses once again that no single analyst call should ever be used as a sole tool for deciding to buy or sell any stock.
SunTrust’s Neal Dingmann noted that Occidental is in a position to continue improving its balance sheet through internal and external means and it can generate free cash flow of more than $1.0 billion in 2020 and $2.8 billion in 2021. The analyst talked up the aggressive capital spending reduction steps that have been taken along with shut-ins. Dingmann believes that the curtailed domestic volumes have started coming back online now that oil prices have improved, and he anticipates that Middle Eastern curtailments or shut-ins will be stickier given the OPEC+ association.
As for the company benefit, SunTrust’s view is that Occidental would see great benefits from a quick move in crude ($40 level or higher) and the current hedges with three-way collars with a $45 subfloor were also noted. Another benefit Dingmann sees is the willingness of equity and credit markets and the government to acquire corporate bonds directly, which could all be viable options for the company to address near-term debt maturities.
As for EOG Resources, SunTrust noted that the company was one of the most opportunistic large exploration and production outfits by materially flexing all operations and finances and with a conservative operational program. EOG is also said to now have a huge build of drilled but uncompleted wells to go along with its material guided shut-in volumes.
EOG also was shown to have recently monetized hedges in favor of potential higher future prices, noting that just a 15% rise from current levels would bring production activity to ramp back up next year just as fast as it fell this year. Dingmann also sees EOG as being among the best upcoming free cash flow and growth profile of any large exploration and production outfits with an estimated maintenance capital of $3.4 billion being easily achieved while cash margins remain among the best in its sector coverage universe.
Occidental Petroleum stock was last seen up 3.7% at $20.42, in a 52-week range of $9.00 to $54.05 and with a $13.74 consensus price target. EOG Resources stock was up over 4% at $55.25, and the consensus price target was $61.06. Its 52-week range is $27.00 to $95.29.
While these were the only two big upgrades in the industry on Friday. SunTrust Robinson Humphrey also b their boosted price targets on four others. All consensus estimates are from Refinitiv.
- Apache Corp. (NYSE: APA): Reiterated as Hold; $11 price target raised to $15. A $14.22 prior close; $12.54 consensus target.
- Devon Energy Corp. (NYSE: DVN): Reiterated as Hold; $13 price target raised to $14. A $12.95 prior close; $15.18 consensus target.
- Marathon Oil Corp. (NYSE: MRO): Reiterated as Hold; $6 price target raised to $7. A $6.49 prior close; $7.17 consensus target.
- Ovintiv Inc. (NYSE: OVV): Reiterated as Hold; $7 price target raised to $12. A $10.73 prior close; $12.68 consensus target.