Wall Street is warming up to the energy sector.
HFI Research: "For energy investors, 2018 will be the year of all years, the inflection of all inflections, and the first-leg of the multi-year bull cycle in oil prices."
Read why here: https://seekingalpha.com/article/413572 ... block=true
Why Energy Stocks are getting Wall Street "Love"
Why Energy Stocks are getting Wall Street "Love"
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Why Energy Stocks are getting Wall Street "Love"
This morning (1/8/2018) I got a new report from Raymond James on how to value an upstream oil & gas company. If you'd like to get a copy of the report, send an email directly to me at dmsteffens@comcast.net. Here is the opening paragraph:
"The age-old perception of E&Ps outspending cash flow with the intention of maximizing growth is under attack as investors take a
more returns focused approach to the E&P space. While it’s still a bit early, preliminary 2018 capital plans announced by companies
so far appear to reflect the changing sentiment in the newfound debate between production growth and returns. While we have
seen operators pay “lip-service” to the idea of improved capital prudence in the past (particularly during low commodity price
environments, when companies typically feel pressure from banks and investors), this more disciplined approach to capital
allocation this year (in a higher price environment) gives us confidence that this time might be different – especially considering the
recent discussions around altering compensation structures to be more returns focused. While we believe that an increased focus
on capital efficiency will be healthy – bringing more stability and prudency to the industry – we also think that, if E&P companies
do end up making a true, sustained commitment to a returns-focused, FCF generation business model, then investors will
ultimately need to change their approach to valuing the group. In today’s stat, we dive into what this potential shift in the
overarching business model might mean for the industry as a whole, by reviewing 1) why E&Ps have historically outspent cash flows;
2) what metrics have been the best predictor of stock price performance in the past (spoiler alert: it hasn’t been returns or free cash
flow metrics); 3) does the current discount rate make sense anymore?; and 4) should the group see multiple expansion?"
"The age-old perception of E&Ps outspending cash flow with the intention of maximizing growth is under attack as investors take a
more returns focused approach to the E&P space. While it’s still a bit early, preliminary 2018 capital plans announced by companies
so far appear to reflect the changing sentiment in the newfound debate between production growth and returns. While we have
seen operators pay “lip-service” to the idea of improved capital prudence in the past (particularly during low commodity price
environments, when companies typically feel pressure from banks and investors), this more disciplined approach to capital
allocation this year (in a higher price environment) gives us confidence that this time might be different – especially considering the
recent discussions around altering compensation structures to be more returns focused. While we believe that an increased focus
on capital efficiency will be healthy – bringing more stability and prudency to the industry – we also think that, if E&P companies
do end up making a true, sustained commitment to a returns-focused, FCF generation business model, then investors will
ultimately need to change their approach to valuing the group. In today’s stat, we dive into what this potential shift in the
overarching business model might mean for the industry as a whole, by reviewing 1) why E&Ps have historically outspent cash flows;
2) what metrics have been the best predictor of stock price performance in the past (spoiler alert: it hasn’t been returns or free cash
flow metrics); 3) does the current discount rate make sense anymore?; and 4) should the group see multiple expansion?"
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Why Energy Stocks are getting Wall Street "Love"
The average price of WTI during 2017 was $50.80, and 26 of the 32 S&P 500 energy companies are expected to show profits for the year.
As of today: Wall Street firms are using a 2018 price target for WTI of $57.40/bbl, while the 2019 target is $59.87. < The Wall Street Gang's paradigm is slowing shifting.
As of today: Wall Street firms are using a 2018 price target for WTI of $57.40/bbl, while the 2019 target is $59.87. < The Wall Street Gang's paradigm is slowing shifting.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group