Why Newfield Could Thrive During The Current Downturn In Oil

Williams Capital initiated coverage on Newfield Exploration Co.

with Buy Rating and $58 price target. The analysts believe the company to thrive through the current downturn, given its strong balance sheet (2.1x net debt/EBITDA at YE16), ample financial liquidity (around $2.4 billion, pro forma for equity) and a strong hedge book. Newfield shares are trading at 9.2x and 6.0x for 2017 and 2018 EV/EBITDA compared to its peers' average of 10.1x and 7.4x, respectively. "However, considering its tremendous stacked-pay resource potential in the Anadarko Basin, we believe shares deserve a valuation closer to the Permian Basin players." wrote the analysts, adding they expect the valuation gap to narrow as the company moves towards development mode, with improving capital efficiencies. The $58 price target implies 2017 and 2018 EV/EBITDA metrics of 11.6x and 7.5x, respectively.