Deutsche Bank On Integrated Oil Group: Pioneer And Noble Upgraded, Anadarko Downgraded

Ryan Todd of Deutsche Bank overviewed the Integrated Oils segment in a note on Thursday. According to the analyst, the search for a bullish sentiment is "like a galaxy-wide search for Skywalker."

Todd noted that Integrated Oil stocks remain a "call option on crude," and the timing of a recovery within the sector remains "highly elusive." However, the analyst did state that he is "cautiously optimistic" given "modest" fundamental improvements in crude balances and a "finally attractive" risk to reward balance for stocks.

"Early 2016 is likely to remain highly volatile, with seasonally weak demand and potential ramp of Iran, but we expect that improving fundamentals from 2Q16 may offer support towards a gradual recovery," the analyst wrote.

"By 2H17, we expect that Non-OPEC declines and a rapidly rising call on US crude will push price north of the $60/bbl needed to sustain US onshore growth."

Upgrading Pioneer To Buy

Todd upgraded shares of Pioneer Natural Resources (NYSE: PXD) to Buy from Hold with a price target raised to $165 from a previous $150.

Todd cited Pioneer's favorable risk to reward profile, proxy for long-dated crude resources, 85 percent hedged oil volumes in 2016, "under-appreciated" balance sheet, as well as the "largest and deepest position" in the Permian's Midland Basin.

Upgrading Noble Energy To Buy

Todd also upgraded shares of Noble Energy, Inc. (NYSE: NBL) to Buy from Hold with a price target raised to $42 from a previous $38.

Todd stated that Noble Energy is a "relatively non-expensive defensive play" on a "lower for longer" crude environment.

Downgrading Anadarko Petroleum To Hold

Finally, Todd downgraded shares of Anadarko Petroleum Corporation (NYSE: APC) to Hold from Buy with a price target lowered to $60 from a previous $85.

Todd's downgraded is based on the fact that Anadarko "isn't particularly defensive" given its 3.3x leverage and 51 percent net debt-cap at year end 2016. In addition, the company is not "particuarlarly well leveraged" to sector-wide recovery.

Todd also argued that Anadarko's stock isn't "particularly inexpensive" at a 22 percent discount to its net asset value and 7.4x 2017 EV/DACF versus 31 percent and 7.4x for the group, respectively. As such, investors can find "greater upside elsewhere."