TipRanks
It’s time to be optimistic about these two oil stocks, says Raymond James
We are entering a new paradigm for the oil and gas industry, a far cry from the Trump Presidency’s pro-drilling policies. The Biden Admin is likely to reduce oil and gas production in the US, in favor of promoting renewable energy sources and reducing carbon pollution. In the short term, its policies are expected to push oil and gas prices up – and that could end up helping the hydrocarbon sector, at least in the financial result, next year. But for oil companies, the lessons of 2020 appear in the balance sheets. The sharp rise in prices last May, followed by a rapid recovery, only to end the year at roughly the same starting price – all of which makes producers seek to cut spending, consolidate or reduce debt and maintain the free flow of money. Cashier. In the words of John Freeman, an oil industry analyst for Raymond James: “[We] between 4Q20 earnings and the 2021 capital budgeting season with the WTI trading, ironically, essentially in the same range of US $ 50.00 as we did last year. Although oil is basically in the same place, the industry has definitely undergone a strategic change with the integrity of the balance sheet and the return of capital to shareholders, by far, the highest priorities. ”In addition to observing the general trend in the sector after a difficult year, Freeman also updated his position on individual oil and gas stocks. Two in particular caught Freeman’s eye. He sees a potential of at least 50% for each of them. We examined them both in the TipRanks database to see what other Wall Street analysts have to say about them. Apache Corporation (APA) Headquartered in Houston, Texas, Apache is a major operator in the North American oil industry. The company’s hydrocarbon exploration and production activities in the United States are located in the Permian Basin, along the Gulf Coast and the Gulf of Mexico. Apache also has operations in the United Kingdom (in the North Sea), in Egypt (in the Western Desert) and in Suriname (offshore). The company’s holdings in Permian include 665.8 million barrels of oil equivalent, 66% of its proven reserves. The company exceeded quarterly revenue expectations in the third quarter, with $ 1.12 billion in revenue. Since the third quarter revenue report, Apache’s shares have increased by 71%. The company registered 445,000 barrels of oil equivalent per day in third quarter production. Covering Raymond James’ shares, analyst John Freeman writes: “We continue to like Apache’s diverse portfolio of US onshore and international assets (Egypt, North Sea and Suriname), and given Apache’s considerable commodity exposure (base only) Protected waha in 2021), the company is ideally placed to capitalize on our projected resurgence in commodity prices in the 2021/2022 period. In addition, the operator has an extremely robust FCF profile [and] proven commitment to capital discipline … ”In line with these comments, the analyst gives APA a strong buy rating and a target price of $ 24, which implies a 60% upside potential in the next 12 months . (To view Freeman’s history, click here) Freeman leads the Bulls on Apache. The stock has a Moderate buy from the analyst consensus, based on 12 reviews including 6 purchases, 5 holds and 1 sale. The shares are selling for $ 14.94, and its average price target of $ 19.30 suggests room for a 29% growth this year. (See APA stock analysis at 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 revenue reach $ 720 million in the third quarter of 2020. Production in the quarter averaged 287,800 barrels of oil equivalent per day. Diamondback’s reserves total more than 1.12 billion barrels of oil equivalent, of which 63% are oil and 37% are natural gas and related liquids. Diamondback is expanding its operations through M&A activities. In December last year, the company announced that it will acquire QEP Resources, a natural gas drilling rig in the Midland Basin of the Permian formation along with operations in the North Dakota Williston formation. The acquisition involves all shares, with an estimated value of US $ 2.2 billion. QEP brings 49,000 acres in Midland for potential development, an average production of 48.3 million BOE per day and 48 ‘drilled but incomplete’ wells. These assets add value to Diamondback’s portfolio. In related news, Diamondback announced that it will also acquire Guidon, another rival oil producer in Texas. Guidon brings additional Permian assets to Diamondback, and the acquisition is significant, valued at $ 862 million in cash and shares. Looking at Diamondback, Freeman sees the company in a strong position to meet the challenges of the Biden government’s energy environment and regulatory policies. “Moving forward with the addition of the QEP and Guidon acreage, we anticipate that Midland will account for approximately 75% of pro forma activity. Note that even after the QEP / Guidon acquisitions, FANG still has no federal area exposure – significant positive regulatory uncertainty is likely to persist after the 60-day lease moratorium ends … We believe FANG offers considerable growth potential in the long term and are confident in the company’s ability to face commodity uncertainties in the short term, ”Freeman said. Unsurprisingly, Freeman classifies FANG as a strong buy, along with a target price of $ 91. This figure indicates confidence in ~ 51% growth over the next 12 months. (To see Freeman’s history, click here) There is broad agreement on Wall Street with Freeman’s position here. FANG shares have a Strong Buy rating from the analyst consensus, based on 13 recent Buy reviews against just 3 Holds. The average target price is $ 67.37, which implies ~ 12% increase from the current trading price of $ 67.37. (See TipRanks FANG stock analysis) To find good ideas for trading oil stocks with attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all TipRanks stock insights. Disclaimer: The opinions expressed in this article are exclusively those of the analyst presented. The content should be used for informational purposes only. It is very important to do your own analysis before making any investments.