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Time to turn bullish on these 2 oil stocks, says Raymond James
We are entering a new paradigm for the oil and gas industry, far removed from the pro-drilling policies of the Trump presidency. Biden’s administration is likely to cut back on oil and gas production in the United States, in favor of promoting renewable energy sources and reducing carbon pollution. In the short term, its policies are likely to push oil and gas prices higher – and this may prove useful for the oil and gas industry, at least on the bottom line, over the coming year. But for oil companies, the lessons of 2020 appear in the balance sheets. The massive price spike last May, followed by a rapid recovery, to end the year at about the same price it started – all of which are prompting producers to cut spending, consolidate or reduce debt and to remain free of cash flow. In the words of Raymond James oil industry analyst John Freeman: “[We] Enter the results of 4Q20 and the 2021 capital budget season with trading the WTI, ironically, in essentially the same $ 50 range that we did around the same time last year. While crude is largely in one place, the industry has definitely undergone a strategic shift with the health of the balance sheet and the return of capital to shareholders by far the highest priorities. In addition to noting the general industry trend after a difficult year, Freeman also updated his position on individual oil and gas stocks. Two in particular caught Freeman’s attention. He sees at least 50% upside potential for each of them. We scoured both in the TipRanks database to see what other Wall Street analysts have to say about them. Apache Corporation (APA) With its headquarters in Houston, Texas, Apache is a major operator in the North American petroleum industry. The Company’s U.S. hydrocarbon exploration and production operations are located in the Permian Basin, along the Gulf of Mexico coast and in the Gulf of Mexico. Apache also has operations in the UK (North Sea), Egypt (in the Western Desert) and Suriname (offshore). The company’s Permian holdings include 665.8 million barrels of oil equivalent, or 66% of its proven reserves. The company beat quarterly revenue guidance in the third quarter, with $ 1.12 billion in revenue. Since the release of third-quarter revenue, Apache stock has gained 71%. The company reported 445,000 barrels of oil equivalent per day in third quarter production. Covering the headline of Raymond James, analyst John Freeman writes: “We continue to appreciate Apache’s diverse portfolio of US onshore and international assets (Egypt, North Sea and Suriname), and given the considerable exposure from Apache to raw materials (only based on Waha in 2021). ), the company is ideally located to capitalize on our project of a resurgence in commodity prices by 2021/2022. In addition, the operator has an extremely robust FCF profile [and] proven commitment to capital discipline… ”Consistent with these comments, the analyst gives APA a strong buy rating and a price target of $ 24 which implies upside potential of 60% over the next 12 months. (To view Freeman’s record, click here) Freeman leads the Bulls on Apache. The stock has an analyst consensus moderate buy, based on 12 reviews that include 6 buy, 5 take, and 1 sell. The shares are selling for $ 14.94 and their average price target of $ 19.30 points to upward growth of 29% this year. (See APA stock market analysis on TipRanks) Diamondback Energy (FANG) Also based in Texas, Diamondback Energy is another player in the Permian Basin energy boom. The company has a market capitalization of $ 8.9 billion and saw revenues reach $ 720 million in the third quarter of 2020. Production during the quarter averaged 287.8 thousand barrels of oil equivalent per day . Diamondback’s reserves total more than 1.12 billion barrels of oil equivalent, of which 63% is petroleum and 37% natural gas and related liquids. Diamondback expands operations through M&A activity. In December of last year, the company announced that it would acquire QEP Resources, a natural gas driller in the Midland Basin of the Permian Formation as well as operations in the Williston Formation of North Dakota. The acquisition is an all-equity transaction, valued at an estimated $ 2.2 billion. QEP is bringing 49,000 acres to the Midland for potential development, an average production of 48,300,000 boe per day and 48 “drilled but unfinished” wells. These assets contribute to Diamondback’s portfolio. In related news, Diamondback said it will also acquire Guidon, another rival Texas oil producer. Guidon brings additional Permian assets to Diamondback, and the acquisition is significant, valued at $ 862 million in cash and stock. Glancing at Diamondback, Freeman sees the company in a strong position to meet the challenges of the energy environment and regulatory policies of the Biden administration. “Going forward, with the addition of QEP and Guidon acreage, we expect Midland to represent approximately 75% of the pro forma business. Note that even after the QEP / Guidon acquisitions, FANG still has no exposure to federal acreage – significant positive regulatory uncertainty will likely persist after the expiration of the 60-day rental moratorium … We believe that FANG offers considerable long-term upside potential and are confident in the company’s ability to weather short-term commodity uncertainties, ”said Freeman. Unsurprisingly, Freeman rates FANG as a strong buy, with a price target of $ 91. This figure indicates confidence in growth of around 51% over the next 12 months. (To view Freeman’s record, click here) There is broad agreement on Wall Street with Freeman’s position here. FANG stock holds a strong buy rating by analyst consensus, based on 13 recent buy reviews versus just 3 holds. The average price target is $ 67.37, which implies an increase of about 12% from the current price of $ 67.37. (See FANG Stock Analysis on TipRanks) To find great ideas for oil stocks trading at attractive valuations, visit TipRanks Best Stocks to Buy, a newly launched tool that brings together all the information about TipRanks stocks. Disclaimer: The opinions expressed in this article are solely those of the analyst presented. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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