Oppenheimer Upgrades Superior Energy On 'Favorable' Risk/Reward

In a report published Thursday, Oppenheimer analysts upgraded the rating on

from Perform to Outperform, while raising the price target from $20 to $30. The analysts believe the Street projections for the company's basic services are too pessimistic. "Many analysts are projecting operating losses in 2016 for Superior Energy's Onshore Completion & Workover and Production Services segments. While they posted operating losses in 1Q15, we believe these businesses will return to profitability in 2016 as the company brings its cost structure in line with activity," the analysts said. Several OFS companies have started to shift from trying to protect their market share to refusing to work at an operating loss. According to the Oppenheimer report, this discipline could lead to a return to profitability by 4Q15 if it becomes the norm. According to the analysts, "The DPS segment is heavily driven by Gulf of Mexico activity. Using 2010 as a guide for a 2016 DPS forecast will cause artificially low earnings estimates if you don't adjust for the havoc that the Macondo incident caused with 2H10 numbers." The analysts believe the stock valuation is attractive for investors to build their position over the next few months, especially given the 20 percent increase in the stock year-to-date.