Barclays has published its equity outlook for 2012 on December 13th. They believe that the situation in the U.S. looks less grim than that of Europe. Concerns about a double-dip recession now appear premature and corporate profitability, although not stellar, is still encouraging. Barclays has highlighted that the most significant risk to the energy sector will come from the global growth and policies which they expect to improve slightly in 2012. Barclays has selected 6 stocks in the energy sector that are predicted to show enough positive signs to beat the market.
Barclays’ top buys from the US Energy industry include:
Baker Hughes (BHI) is a top-tier oilfield services company with a market cap of $22.14 Billion. BHI is currently priced at $49.00 per share, but Barclays have projected a target share price of $89.00 per share, yielding 69.39%. During the second half of 2011, BHI announced several key international contract wins, including a project management contract in Iraq, a major high pressure/high temperature project in Malaysia (commencing in 4Q), and a two-year directional drilling project offshore Mexico. BHI is currently trading at 8.9x which is undervalued in the opinion of Barclays, as they compare this to BHI’s historical P/E ratio of 13x.
EQT Corporation (EQT) is a diversified natural gas corporation with two business units: production and midstream. EQT’s market cap is only $8.69 Billion. EQT’s current price per share is $56.74, whereas Barclay’s estimated target price per share is at $70.00. The company’s reserves to production ratio is about 150 years, and it has a sizable resource position in the Marcellus shale. Barclays believes that NPV will improve as spending accelerates, and EQT will outspend cash flow to exploit the asset base.
Markwest Energy Partners, LP (MWE) is engaged in the gathering, processing and transportation of natural gas and has a market cap of $4.76 Billion. MWE’s current price per share is $56.07, and Barclays expects this share price to stand at $57.00. Barclays rates MWE with potential for the most growth in the MLP sector. Underlying reasons include strong growth prospects supported by its favorably located asset base (exposed to the Marcellus/Utica shale), lack of incentive distribution rights [IDR], combined with a healthy balance sheet and $1.4 billion of liquidity.
Noble Energy (NBL), a leading energy company has a market cap of $16.97 Billion. NBL’s current share price of $93.17 is expected to swell to a target share price of $123.00 according to Barclays. NBL is expected to continue delivering top-tier profit and EPS growth among energy companies. Noble has enjoyed very impressive exploration success over the past several years: (1) 1.9 billion barrels of oil equivalent (boe) of net resources including its share of 25 Tcf of Israeli gas (2) new volumes from the Marcellus Shale and growing volumes from the Niobrara Shale will add 15% to production and 25% to revenue by the first quarter of 2012.
Plains Exploration & Production (PXP) is an independent oil and gas company primarily engaged in the activities of acquiring, developing, exploring and producing oil and gas. PXP’s market cap is $5.08 Billion. The current share price is $34.88, however, Barclays believes that PXP is capable of delivering double-digit production and reserve growth from programs in the Eagle Ford Shale, California and Gulf of Mexico over the next several years, which is why they have their target share price at $55.00. The shares trade at 4.5x EV/2013E pre-interest cash flow compared with an onshore peer average of 4.8x.
Tesoro Corporation (TSO) is an independent refiner and marketer of petroleum products and has a market cap of $3.16 Billion. The company’s current share price is $21.68 and Barclays projected target price per share is $46.00. Barclays believes that TSO is poised to outperform for four reasons: 1) inexpensive valuation 2) strategic capital projects; 3) benefits from its logistics MLP business; and 4) strong seasonal trade pattern. TSO’s Anacortes Rail Facility capital project should substantially add to the company’s earnings due to foreseeable cost savings.