The exploration and production (E&P) research team at Deutsche Bank expect significant focus at the midway point in the year for top oil and gas stocks they cover to be on capital allocation. With West Texas Intermediate (WTI) prices more robust than 2013 budgets (~$14/bbl delta), differentials narrowing across North America, and a continued benign service cost environment, companies with oil-levered assets are likely to be considering higher activity levels. This could easily translate into more production, which may lead to much higher revenue.
Here are the top stocks to buy at Deutsche Bank, with an eye towards the names with the biggest upside potential to their price targets.
Anadarko Petroleum Corp. (APC) is once again a standout name to buy. The company has boosted its presence in the Gulf of Mexico after the deepwater drilling ban was lifted in 2010. Other key areas of growth for the company include offshore Brazil, West Africa, China, Indonesia and New Zealand. Anadarko plans to grow production by 5% in 2013 and 4% in 2014. The Deutsche Bank target price for the stock is $115. The Thomson/First Call estimate is at $105. Investors are paid a tiny 0.4% dividend. A trade to the price target would be a 30% gain for investors.
Apache Corp. (APA) holds a meaningful portion of its oil assets in Egypt, and uncertainty around Apache's ability to monetize them has led to market and peer underperformance. The value of the reserves here is well documented, but extracting that value could continue to prove difficult. This uncertainty may provide investors just the right entry point. Deutsche Bank has a $105 target, while the consensus target is $97. Shareholders are paid a 1.0% dividend. A move to the target would represent a 27% gain.
Concho Resources Inc. (CXO) is another top name finding huge success in the Permian Basin in West Texas. We recently highlighted other stocks also finding success there. The Deutsche Bank price target for the stock is $118, and the consensus target is at $105. A move to the target price would represent a hefty 35% move.
Continental Resources Inc. (CLR) is one of the top operators in the Bakken Shale. It is also one of the favorite independent oil names of CNBC’s Jim Cramer. The Deutsche Bank price target for the stock is $105, and the consensus estimate is posted at $99.50. A move to the target would be a 15% gain for investors.
EQT Corp. (EQT) is in the process of selling its wholly owned subsidiary, Sunrise Pipeline, to EQT Midstream Partners L.P. (EQM). EQT is a low-cost producer with a strategic midstream presence. The company's superior cost structure and above-average growth may alleviate concerns related to struggling natural gas prices. With an increasing reserve structure and a projected higher number of Marcellus wells to be drilled in the coming five years (around 132 wells drilled in 2012 and 153 expected in 2013), the company exhibits industry-leading organic growth momentum. Deutsche Bank has a $110 price target, and the consensus is much lower at $90. The Deutsche Bank target represents a 35% move from current levels and is the highest target on Wall Street.
Cimarex Energy Co. (XEC) recently signed what could be a game changing deal. In June Chevron Corp. (CVX) the second-largest U.S. oil company, signed a joint development agreement for 104,000 acres to be operated by Cimarex, while Chevron will pay $60 million for 50% of the smaller company's Triple Crown gathering system and a 50% interest in wells drilled this year. Deutsche Bank has a $99 price target, and the consensus target for the stock is at $82. Shareholders are paid a small 0.8% dividend. Hitting the target would represent a 37% gain for investors.
Cobalt International Energy Inc. (CIE) explores for oil in the deepwater U.S. Gulf of Mexico and offshore West Africa (Gabon and Angola), with an emphasis on sub-salt and pre-salt exploration, development and production. This may be a prime takeover candidate for firms looking for a deepwater toehold. Deutsche Bank has a $40 target, and the consensus is just shy of that at $38. Trading to the target would be a 40% gain for investors.
Despite constant chatter that oil is going to $50 barrel, one fact remains. The United States is the top country for oil usage. China is second behind us. They have five times the population and use half the oil per day that we do. If the automobile becomes more ubiquitous in China, and the economy continues to grow even at a 7.5% rate, their oil demand will only continue to increase. Companies that grow their production will grow their revenues.
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