Goldman Recommends Rotating Out of WPX Energy, Boots Stock From America's Conviction List

WPX Energy Inc WPX shares have climbed solidly year-to-date, prompting Goldman Sachs to revisit its thesis for the petroleum company. 

The Analyst

Analyst John Nelson downgraded WPX from Buy to Neutral and maintained a $21 price target. The analyst removed the stock from Goldman's Americas Conviction List.

The Thesis

Since its Feb. 1 addition to the Americas Conviction List, WPX shares have gained about 27 percent, better than S&P 500's 26-percent advance and the SPDR S&P Oil & Gas Explore & Prod. (ETF) XOP's 12-percent gain, Nelson said in the Friday downgrade note. (See the analyst's track record here.)

With the valuation now less differentiated and the stock trading merely 8 percent below the price target compared to the 5-percent average and 8-percent median for Goldman's SMID E&P coverage universe, the analyst said a Neutral rating seems apt.

Nelson recommends rotating WPX positions into Buy-rated Diamondback Energy Inc FANG and PDC Energy Inc PDCE, two stocks for which Goldman projects more valuation upside.

WPX's secular growth outlook remains intact, and the company possesses the potential to grow oil volumes at a CAGR of over 20 percent over the next three years and generate free cash flow at $55/barrel for WTI crude oil.

"Over the last four years WPX has executed a near-complete asset base repositioning, recapitalized its balance sheet and unlocked shareholder value by being an early mover to Permian midstream investments," Nelson said. 

The Price Action

WPX shares were sliding 2.56 percent to $19.01 at the time of publication Friday. 

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