NFX upgrade by Wells Fargo
Posted: Mon Jan 11, 2016 1:54 pm
Oil’s getting crushed again but that didn’t stop Wells Fargo’s David Tameron and team from upgrading Whiting Petroleum (WLL) and Newfield Exploration (NFX) today. They explain why:
Bloomberg News
E&P: Short-Term Pains Lead To Long-Term Gains…While headwinds for the group still exist (China, macro-economic concerns, extent of production declines, etc.), we are cautiously optimistic on the group as we move into 2016. Structural changes are finally taking hold, and while we are not through yet, capital spending cuts should finally begin to impact U.S. production levels, setting the stage for crude price recovery. As we begin to see that visibility and come off the trough, the E&P industry should be characterized by better capital efficiency and improving margins. While we are not bold enough to pinpoint the bottom, we believe we are at or near. With regard to E&P shares, issue has been valuation. And stocks today are still not cheap, in our view. However, on our new numbers, with the EPX at its lowest level since inception, multiples do show meaningful compression in 2017, and we feel as constructive on the group as we have been since November 2014 Black Friday. We maintain our ratings on our higher quality Outperform list, but are also using the recent pullback to get more aggressive and upgrading Newfield (NFX) and Whiting (WLL)…We would characterize Newfield as a best of breed defensive name, while Whiting is the higher risk/reward name that has more upside to a potential crude price recovery.
Bloomberg News
E&P: Short-Term Pains Lead To Long-Term Gains…While headwinds for the group still exist (China, macro-economic concerns, extent of production declines, etc.), we are cautiously optimistic on the group as we move into 2016. Structural changes are finally taking hold, and while we are not through yet, capital spending cuts should finally begin to impact U.S. production levels, setting the stage for crude price recovery. As we begin to see that visibility and come off the trough, the E&P industry should be characterized by better capital efficiency and improving margins. While we are not bold enough to pinpoint the bottom, we believe we are at or near. With regard to E&P shares, issue has been valuation. And stocks today are still not cheap, in our view. However, on our new numbers, with the EPX at its lowest level since inception, multiples do show meaningful compression in 2017, and we feel as constructive on the group as we have been since November 2014 Black Friday. We maintain our ratings on our higher quality Outperform list, but are also using the recent pullback to get more aggressive and upgrading Newfield (NFX) and Whiting (WLL)…We would characterize Newfield as a best of breed defensive name, while Whiting is the higher risk/reward name that has more upside to a potential crude price recovery.