Susquehanna checks in on the oil sector on Monday, with an upgrade for Transocean (RIG) and a downgrade for Oasis Petroleum (OAS).
Analyst Biju Perincherilcovers the exploration and production side of the sector, and he cut his rating on Oasis Petroleum to Neutral from Positive, with a $14 price target. He believes that the shares, which are up about 55% year to date, are fully valued following the recent rally. (By contrast, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which has performed better that the broader Energy Select Sector SPDR ETF (XLE) with rising oil prices, is still up just 18% in 2018. )
Still, he's not down on all E&P companies. Perincheril suggests that investors who want exposure to companies with substantial non-Permian production should instead buy Marathon Oil (MRO), given its "stronger risk/reward profile." He has a Positive rating on the stock and raised his price target by $2 today, to $26.
In fact, he raised his price targets by 13% on average for the stocks he covers, to account for higher commodity prices, although with a note of caution: "Although oil prices could continue to find support from supply outages and diminishing OPEC spare capacity, we think risk profile on the demand side is rising."
Elsewhere, his colleague Charles Minervino upgraded Transocean to Positive from Neutral, with a $16 price target.
The move is part of his pre-earnings look at the oilfield-services industry, as he anticipates that companies will have
"more positive commentary on both the offshore-drilling and capital-equipment sectors." As such, he boosted his rating on Transocean for more leverage to the offshore-drilling sector, which he believes is on the upswing after several years of declines.
"Offshore-floater contracting activity has begun to rebound, and we believe more positive commentary across several of the companies suggests the industry is beginning to heal, and better utilization could be ahead in 2019 and 2020."
He isn't the only one. Others have predicted that oilfield-services stocks may finally be on the rebound and that Transocean is being proactive by scrapping old rigs.
By: Teresa Rivas (Barron's).
Photo: Offshore Technology.
Review: Emerging Market Formulations & Research Unit, Flagship Records.