WTI crude oil prices have surged to 11-year highs above $108 per barrel in March in the wake of the Russian invasion of Ukraine. The geopolitical instability has rattled financial markets, but the energy sector is soaring.
On Wednesday, OPEC and its partners agreed to stick to a previous plan to increase oil output slowly in April, suggesting elevated oil prices may be here to stay for the time being. Oil prices are good news for many companies within the energy sector because it boosts their margins and increases their profitability.
Here are six of the next energy stocks to buy and hold for the long-term, according to Bank of America.
Exxon Mobil Corp XOM
Exxon Mobil is the largest U.S. oil company. Analyst Doug Leggate says Exxon has come a long way from where it was six months ago, when some analysts were calling for a dividend cut. Leggate says Exxon can cover its capex and dividends at a crude oil price of $41/bbl, and he believes Exxon's break-even oil price will be $10 below that level by 2028. Incredibly, Leggate says Exxon is positioned to potentially buy back 30% of its stock by that time.
Bank of America has a Buy rating and $110 price target for XOM stock.
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Chevron Corporation CVX
Following Chevron's recent analyst day event, Leggate said Chevron is focusing on the Permian basin in 2022. He said Chevron is less concerned about absolute production growth and more on cash flow growth and shareholder returns. Management roughly doubled its recent buyback guidance from between $3 billion and $5 billion to a new range of between $5 billion and $10 billion. Leggate says Chevron should generate enough cash flow to cover its dividend, with Brent Crude Oil prices as low as $50/bbl.
Bank of America has a Buy rating and $180 price target for CVX stock.
Leggate says ConocoPhillips is a "cash machine" when oil prices are elevated, and its business has gotten a major boost from two well-timed acquisitions of the Permian assets of Shell PLC SHEL and Concho Resources. Leggate says the company has one of the most conservative balance sheets among large exploration and production companies and has a prospective free cash yield of 14% in 2022. Following the acquisitions, Leggate says ConocoPhillips should generate enough cash flow this year to eliminate its $13.2 billion in net debt by the end of the year.
Bank of America has a Buy rating and $100 price target for COP stock.
EOG Resources Inc EOG
EOG Resources missed consensus earnings estimates in the fourth quarter thanks to charges related to leasehold impairment and dry hole expenses. However, Leggate says the company's 2022 guidance suggests oil production will return to pre-pandemic levels this year, and EOG's cash flow story will improve as double premium wells make up a higher mix of the company's base business over time. Leggate says EOG's 2.5% dividend yield stands out among its E&P peers, and inventory management should unlock value for investors.
Bank of America has a Buy rating and $130 price target for EOG stock.
Schlumberger NV SLB
Oil services giant Schlumberger reported a fourth-quarter earnings beat in January, and analyst Chase Mulvehill says the company's strategy of divesting low-margin businesses and increasing its Digital penetration is getting the company back in top form to take advantage of rising oil prices. Schlumberger grew its commercial DELFI customers by more than 160% in 2021, and has expanded its autonomous drilling and Agora Edge AI & IOT solutions offerings. Mulvehill says investors should expect a significant dividend hike and large share buyback program once the company hits its target of 2x leverage.
Bank of America has a Buy rating and $44 price target for SLB stock.
Marathon Petroleum Corp MPC
Marathon Petroleum is an independent U.S. petroleum refiner and marketer. Leggate says his refining margin estimate for 2022 is $10.56, ahead of pre-COVID levels and at the top end of its five-year range. He projects the company will generate $2.2 billion in cash flow this year beyond the $1.7 billion committed to its capital program and $1.3 billion devoted to its 3% dividend. In addition, Marathon recently announced a brand new $5 billion buyback program.
Bank of America has a Buy rating and $93 price target for MPC stock.
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