As the push continues toward a more energy independent America, some of the leading energy names continue to make huge leaps in production and profitability. The analysts at Bank of America Merrill Lynch have had a string of meetings with top management at some of the firms they cover. Based on some of those meetings, they are raising price targets and expectations on some of their top energy names to buy.
We have written about the incredible possibilities in the Permian Basin in West Texas being worth more than $100 billion. In fact, some analysts feel that there could be 100 years of production and more than one billion barrels of oil. The Merrill Lynch team is focusing on production increases in the Permian and other top areas around the country. Big increases can lead to big gains in stock prices. Merrill Lynch is raising price targets on some of its top stocks to buy that have signaled big gains in production or other positive factors.
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Pioneer Natural Resources (PXD) was up more than 6% Wednesday and appears to be ready to announce huge well results in early November. The analysts at Merrill Lynch also think that management estimates are very conservative. Pioneer clearly has established itself as a leader in the Permian Basin. Merrill Lynch raises its price target from $225 to $275. The Thomson/First Call estimate for the stock is $206. Pioneer closed Wednesday at $211.86.
Dril-Quip Inc. (DRQ) is a top energy services name to buy and has been rumored to be a takeover candidate. The company is one of the world's leading manufacturers of precision-engineered offshore drilling and production equipment that is well suited for use in deepwater, harsh environments and severe service applications. The company designs and manufactures subsea, surface and offshore rig equipment for use by oil and gas companies in offshore areas throughout the world. Dril-Quip also provides installation and reconditioning services, as well as rental running tools for use with its products. Merrill Lynch lifts its price target from $128 to $141, versus a consensus price target of $118 and a $119.22 closing price.
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Hess Corp. (HES) really impressed the Merrill Lynch analysts during recent meetings. It garnered their confidence as a strong risk-reward play led by a step up in activity in Bakken Shale and potential to buy back 20% to 30% of shares, a move that could have a huge price impact. Investors are paid a 1.2% dividend. The Merrill Lynch price target for the stock is $115, and the consensus target is much lower at $87. The Merrill Lynch target is the highest on the street and would represent almost a 40% gain for investors. Hess closed Wednesday at $82.31.
Occidental Petroleum Corp. (OXY) is expected to announce more on its spin-off of Occidental/California at the Merrill Lynch energy conference in November, which we will cover. There could be substantial cash returned to investors from the company via the spin-off and other transactions. Investors are paid a solid 2.7% dividend. The Merrill Lynch price target for the stock is $130, and the consensus target is set at $107. Occidental closed on Wednesday at $96.97.
Exxon Mobil Corp. (XOM) may be in the slow-growth doghouse at some firms on Wall Street, but not Merrill Lynch. The company has paid dividends for 131 consecutive years, with the operational performance and cash flows to pay for another 131 years. Beyond a dividend and repurchase policy that returned almost 8% to investors last year, the company has significant advantages in operational performance and emerging market growth. Investors are paid a 2.9% dividend for the venerable oil giant. The Merrill Lynch price objective is posted at $110, while the consensus target is lower at $95. Exxon closed Wednesday at $87.31.
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National Oilwell Varco Inc. (NOV) is another top oilfield services stock to buy at Merrill Lynch. The company provides many types of equipment and components used in oil and gas drilling and production operations, from complex deepwater drilling rigs to small spare parts. Workers in its industry say there is "No Other Vendor," and CAPS participants have awarded National Oilwell Varco with the highest five-star rating. Investors are paid a 1.3% dividend. Merrill Lynch raises its price target from $86 to $89. The consensus figure is at $86. The stock closed Wednesday at $81.15.
Any time a Wall Street firm raises estimates right before earnings are to be reported, investors should think about getting involved in the name. When a firm has the conviction to raise ahead of the report, it must feel very comfortable with the knowledge it has accumulated. That may bode extremely well for investors that buy before the earnings actually hit the tape.