Continental Resource (CLR)

[dan_s]

Morgan Stanley published a new report on the energy sector on July 12, 2018. CLR is one of their top three picks (price target of $89/share), primarily because none of its oil is hedged and it is going to generate a mountain of free cash flow in 2018 and 2019.

"Morgan Stanley's equity strategist, Mike Wilson, remains bullish Energy equities.
Our Equity Strategy team believes we are in a late cycle environment for equities.
Hallmarks of late cycle environments include supply/demand imbalances
brought on by expanding economies that stretch supply chains. The supply/demand
picture for oil is no different: Late in economic cycles, demand for oil rises faster than
supply, driving prices higher and benefiting E&Ps and the Energy sector broadly. This
dynamic supports our Attractive industry view. We note that since 1995 E&Ps have
outperformed the S&P 500 by an average of over 10% in years when oil prices have
remained fairly stable, and 15% in years when oil prices have moved significantly higher."

Morgan Stanley is negative on the pure Permian Basin companies that don't have firm takeaway capacity contracts. They list Pioneer Natural Resources (PXD) as their preferred way to play the Permian Basin because they should avoid most of the takeaway capacity issues.

Pioneer Natural Resources (PXD, $240 PT) — "Permian exposure without
infrastructure risks at an attractive price. The stock has underperformed the E&P
group by 10% YTD, as it sold off with broad concerns about Permian growth
despite having much better protections in place than most peers. Long-term firm
takeaway contracts covering 90-95% of production provide Brent-linked
realizations for oil and flow assurance for gas volumes. Vertical integration with
services (pressure pumping, well services, sand, water services) cushions the
company from service cost inflation. PXDs unmatched 45-year inventory depth
drives the highest NAV upside within our coverage."