JPMorgan On Large Cap E&P: Anadarko, Antero Upgraded; EP Energy, Southwestern Downgraded

JPMorgan has revised ratings on several large-cap exploration and production companies, primarily on the 71 percent rally of E&P equities in its coverage over the past six weeks, as oil prices have climbed about 34 percent from its February lows.

Analysts, including Arun Jayaram, "favor companies that can sustain or quickly re-establish positive operating momentum as the industry as a whole begins fighting the decline curve."

The analyst has upgraded Anadarko Petroleum Corporation APC to Overweight from Neutral based on an attractive relative valuation, a resilient production profile and improved balance sheet.

Jayaram also raised his rating on Antero Resources Corp AR to Neutral from Underweight on strong PDP reserve growth and expectations of continued strong operating momentum through 2017.

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"(T)he resiliency of AR's earnings power in '16 and '17 given its hedge book will stand out relative to its gassy peers that face negative estimate revisions and cash flow challenges from gas price weakness," Jayaram stated.

The analyst believes Antero would benefit from delays in several key Appalachian takeaway projects, an event that should help monetizing the company's unused firm transportation capacity on attractive terms.

Meanwhile, the analyst has cut Southwestern Energy Company SWN to Underweight from Neutral and EP Energy Corp EPE to Neutral from Overweight on valuation metrics.

Top Picks

JPMorgan's top natural gas pick remains EQT Corporation EQT given differentiated growth, a strong balance sheet, noteworthy catalysts and attractive valuation.

The analyst recommends Concho Resources Inc CXO, Noble Energy, Inc. NBL and Pioneer Natural Resources PXD, along with select beta stocks such as Continental Resources, Inc. CLR and Devon Energy Corp DVN.

"We believe further successful delineation of the emerging STACK play in Oklahoma could support a relative re-rating in CLR and DVN shares as drilling returns in the oil window are among the highest in U.S. We believe CLR could announce an additional step-out well in the condensate window of the STACK, which could further increase confidence in the play," Jayaram noted.

Commenting on the activity levels, the analyst expects that most producers would wait until the oil prices reach the low- to mid-$50 mark to restart activity.

According to TipRanks, Jayaram has a success rate of 44 percent, with an average return per recommendation of -1.9 percent. The analyst is ranked 2,842 out of 3,879 analysts.

Ratings And Price Targets

The following table shows the rating and price target changes of JPMorgan on various E&P stocks.