Market Overview

Barclays: Oil Majors Will Miss Consensus

  • Oil stocks have been treading a downward path in 2015, with the group of 10 major oil company stocks trading at a 19 percent discount to their NAV.
  • Barclays’ Paul Y. Cheng maintained a Neutral rating on the sector, while reducing the ratings and price targets of several companies.
  • The ten America-based oil majors are expected to miss consensus expectations in the light of lower crude oil and gas prices, Cheng mentioned.

Analyst Paul Y Cheng said that the lower crude oil and gas prices are expected to restrict the 3Q15 performance of several oil majors based in the US. “Sequentially, Brent was down $10.7/bl, WTI was down $10.6/bl, and LLS trade month decreased $13.2/bl from 2Q15,” Cheng added.

Although the refining companies have benefited from a modest widening of the key North American crude differentials and stronger product cracks, higher operating costs and lower-than-expected margin capture rate at several refiners due to unplanned outages have partially offset these benefits, the Barclays report stated.

Barclays has reduced the 2015 and 2016 Brent price assumptions to $54.5/bl and $60.0/bl,, respectively, from its previous estimates of $57.5/bl and $63.0/bl.

“We maintain our Neutral sector rating even though we think the group may have already reached their near term low relative to the market. We do not believe the market will be willing to value the sector at more than $75 Brent over the next 12 months. As a result, we think the group's near-term upside may be limited,” Cheng wrote.

He added, however, that the sector valuation could improve over the next 3-4 years, with the global oil market demand and supply expected to tighten by late 2017-2018.

Rating Changes

Analyst Cheng downgraded the rating on Petroleo Brasileiro SA - Petrobras (ADR) (NYSE: PBR) from Overweight to Equal-weight.

Although Petrobras shares continue to be attractively valued, the company’s unsustainable levels of debt, cash flow outlook and the concerns surrounding the corruption investigation cannot be ignored, Cheng noted.

Barclays downgraded the rating on Imperial Oil Limited (USA) (NYSE: IMO) from Overweight to Equal-weight, while reducing the price target from $57 to $48.

Price Target Changes

Cheng maintained an Overweight rating on Petroleo Brasileiro SA - Petrobras (ADR) (NYSE: PBR.A) preferred shares in view of their stronger dividend protection and attractive valuation. The price target for PBRA was reduced from $12 to $7.50.

The analyst kept Chevron Corporation (NYSE: CVX) at Equal-weight, while reducing the price target from $99 to $96.

Barclays maintained an Equal-weight rating on Hess Corp. (NYSE: HES), while reducing the price target from $68 to $65.

The price target for Equal-weight rated Murphy Oil Corporation (NYSE: MUR) was reduced from $38 to $32.

Cheng maintained an Overweight rating on Suncor Energy Inc. (USA) (NYSE: SU) and Husky Energy Inc. (TSE: HSE), while reducing the price targets from $49 to $45 and $31 to $28, respectively.

The Barclays report noted that on a risk-adjusted basis, Suncor Energy and Husky Energy offer the best value over the next 12 months.

Latest Ratings for CVX

Jan 2021HSBCUpgradesHoldBuy
Jan 2021Morgan StanleyMaintainsOverweight
Jan 2021Piper SandlerUpgradesNeutralOverweight

View More Analyst Ratings for CVX
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