Market Overview

Why Deutsche Bank Thinks You Should Now Buy Encana, Not Whiting

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  • Shares of Encana Corporation (NYSE: ECA) have lost nearly 54 percent from a year ago while shares of Whiting Petroleum Corp (NYSE: WLL) have lost more than 65 percent.
  • Josh Silverstein of Deutsche Bank upgraded shares of Encana to Buy (from non-rated) and downgraded shares of Whiting to Hold (from Buy).
  • Silverstein noted that corporate actions at Encana over the past three years "stand out" and offers the company the best opportunity to re-rate the asset base higher.

The "wild ride" for upstream equities continued into last week's trading session, according to Josh Silverstein of Credit Suisse who stated that in the "uncertain" environment, investors should focus on producers with improving asset bases, expanding margins, and balance sheets showing strength. Accordingly, shares of Encana were upgraded to Buy from non-rated with a new $12 price target while shares of Whiting Petroleum were downgraded to Hold from Buy with a price target lowered to $23 from a previous $29.

Silverstein continued that recent corporate actions at Encana over the past three years "stand out" as having the best opportunity to re-rate the asset base higher. Specifically, the company has re-positioned its portfolio to focus more as a liquids producer in four of the "best" North American basins. The move has increased the analyst's confidence in the company's ability to deliver on production targets and margin expansion.

On the other hand, Silverstein stated that his preview positive thesis on Whiting Petroleum was based on an underperforming stock that would outperform in 2016 should oil return to a $60-$70 per barrel price. However, the analyst noted that this is a view that he no longer holds.

Silverstein also added that Whiting non-core asset sales should help reduce leverage and its core inventory economics are showing signs of improvements. Nevertheless, the forward outlook for the company (and the Bakken) is dependent on an improving commodity market.

Finally, Silverstein suggested that the "rollercoaster" in the segment will continue and most companies will defer formal 2016 guidance until at least December. In the interim, investors should allocate their holdings towards companies (such as Encana) that have the ability to "differentiate in a flat price environment."

Posted-In: BakkenAnalyst Color Long Ideas Short Ideas Commodities Markets Analyst Ratings Trading Ideas

 

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