WPX Energy Is The High Beta Oil Stock To Buy: Goldman Sachs

Goldman Sachs’ John Nelson believes WPX Energy Inc WPX has the potential to see 63 percent upside, which ranks the stock as the most attractive “next rung down” E&P stock in Goldman Sachs’ coverage universe.

Nelson upgraded the rating on the company from Neutral to Buy, while raising the price target from $10.50 to $14.75.

Related Link: Whiting Petroleum Downgraded At Goldman In Favor Of WPX Energy

Undervalued Growth Opportunities

The analyst mentioned that the upgrade followed the completion of WPX Energy’s recapitalization and strategic repositioning.

“We believe investors who were previously hesitant, mainly due to financial leverage concerns will likely revisit the stock as the market recognizes materially undervalued medium-term oil production growth opportunities,” Nelson stated.

The “New” WPX

Since new leadership took over in mid-2014, the company has completed asset divestitures worth $2.5 billion, transitioning its asset base to resemble its Permian peers more closely.

“We think the firm’s recent $0.5bn equity issuance resolves lingering investor balance sheet concerns, paving the way for WPX to narrow its 1.8x discount to peers,” Nelson said.

The analyst expects the “new WPX” to witness peer-leading, debt adjusted oil production growth of 29 percent at least through 2018.

Nelson believes that the Street underestimates WPX Energy’s “willingness to outspend cash flow to pull forward NPV.”