"Companies with superior combined full-cycle returns, value upside, and less financial leverage
include Pioneer, Shell, Equinor, EOG, Chevron, TotalEnergies, Hess, PDC, and Antero. The
energy sector reflects NYMEX ~$57 oil and ~$2.75 natural gas. Our NYMEX 2022 oil price is ~$67
and 2023+ equilibrium outlook is $64. Our NYMEX 2022 natural gas price is ~$3.80, and 2023+
equilibrium outlook is $3.10. Our commodity price deck implies sector median valuation upside
of ~24%. Oil-oriented businesses (>50% oil) have ~24% upside, natural gas-oriented producers
(<20% oil) have ~35% upside, and combo-composition companies (20%-50% oil) have ~26%
upside. Our composite equilibrium Mont Belvieu NGL price is ~50% of NYMEX oil."
John Gerdes, Managing Director MKM Partners Equity Research Team
Most of the Wall Street Gang is just starting to realize that oil and gas prices are going a lot higher.
Picks from the Wall Street Gang - Oct 25
Picks from the Wall Street Gang - Oct 25
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Picks from the Wall Street Gang - Oct 25
Schlumberger Limited (SLB.N) - Lifting 2022/23 Estimates; Don't
Underestimate Margin Leverage
North America | Oil & Gas Equipment & Services | Buy
SLB reported an in-line 3q which appears to be a victory in light of cost inflation,
supply chain issues and Covid restrictions. SLB's 4q guide (~4% growth and flat
margins) appears conservative. We're in-line on growth but forecast ~50 bps of
margin improvement yielding $1.38 B in EBITDA. More importantly, SLB's margin
leverage to the end market recovery appears under-appreciated. Expanding
digital sales, improving product mix, upside to pricing and operating leverage on
a much slimmer cost structure should portend healthy incrementals. We forecast
34% incrementals on average in 2022/23, which does not appear aggressive.
Applied to revenue growth of 15.5%/8.5% in 2022/23 yields EBITDA of $6.05 B
and $6.8 B, which likely lands above updated consensus. This growth should
allow SLB to achieve its sub 2x leverage target by mid 2022 and potentially begin
enhancing shareholder returns soon thereafter. We maintain our Buy rating.
Scott Gruber at Citi Research
Underestimate Margin Leverage
North America | Oil & Gas Equipment & Services | Buy
SLB reported an in-line 3q which appears to be a victory in light of cost inflation,
supply chain issues and Covid restrictions. SLB's 4q guide (~4% growth and flat
margins) appears conservative. We're in-line on growth but forecast ~50 bps of
margin improvement yielding $1.38 B in EBITDA. More importantly, SLB's margin
leverage to the end market recovery appears under-appreciated. Expanding
digital sales, improving product mix, upside to pricing and operating leverage on
a much slimmer cost structure should portend healthy incrementals. We forecast
34% incrementals on average in 2022/23, which does not appear aggressive.
Applied to revenue growth of 15.5%/8.5% in 2022/23 yields EBITDA of $6.05 B
and $6.8 B, which likely lands above updated consensus. This growth should
allow SLB to achieve its sub 2x leverage target by mid 2022 and potentially begin
enhancing shareholder returns soon thereafter. We maintain our Buy rating.
Scott Gruber at Citi Research
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group