Market Overview

Credit Suisse Unleashes Wave Of New Energy Coverage

Share:
Credit Suisse Unleashes Wave Of New Energy Coverage

Initiating coverage of 38 U.S. exploration and production, or E&P, companies — as well as Chevron Corporation (NYSE: CVX) and Exxon Mobil Corporation (NYSE: XOM) — Credit Suisse said it sees relative value in select E&P names, although the firm views the U.S. majors as expensive.

Analyst William Featherston said E&Ps now trade at a 10-percent discount to the firm's mid-cycle oil price forecast of $57 per barrel. Relative value exists within the sector, especially among SMID-caps, with capital-efficient growth, resource inventory depth and relative valuation differentiating companies, the analyst said. (See Featherston's track record here.) 

U.S. majors "appear expensive" versus European peers, U.S. E&Ps and their own historical multiples, even as they offer less leverage to an oil price recovery, the analyst said.

Featherston sees the long-end of the WTI futures curve, currently at $51 per barrel, as undervalued compared to his forecast of $57 per barrel, providing opportunity. Although modestly positive on 2018 fundamentals for U.S. natural gas, the analyst said long-term prices are likely to be rangebound near $3 per MMBtu in a roughly balanced supply/demand scenario.

Offering its take on the key sector debates into 2018, Credit Suisse said the focus should be on debt-adjusted growth metrics over the return on capital employed, or ROCE. The firm also said it sees better value in E&Ps investing in high-return projects than shifting to an outsized cash return model.

See also: Exercising Caution With Energy ETFs

Credit Suisse projects U.S. oil production will grow 750 MBbld year-over-year in the fourth quarter. U.S. E&P capex is expected to grow 12 percent in 2018, implying a plowback ratio of 90 percent compared to the historical value of 120 percent, Featherston said. 

The firm said its Outperform ratings are for "oily" SMID-caps, while it is Neutral on large-caps and "gassy" E&P.

Credit Suisse's Top Outperform-Rated E&P Picks

Marathon Oil Corporation (NYSE: MRO) - $20

Continental Resources, Inc. (NYSE: CLR) - $57

Anadarko Petroleum Corporation (NYSE: APC) - $61

Cimarex Energy Co (NYSE: XEC) - $140

Extraction Oil & Gas Inc (NASDAQ: XOG) - $19

Related Link:

UBS: Viper Energy Could Strike Next Year

 

Related Articles (APC + CLR)

View Comments and Join the Discussion!

Posted-In: Credit Suisse e&p energy Natural GasAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

Latest Ratings

StockFirmActionPT
ETREvercore ISI GroupUpgrades
FLRVertical ResearchUpgrades
SLGMorgan StanleyMaintains58.3
FASTMorgan StanleyMaintains49.0
EGHTMorgan StanleyMaintains35.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com