Tuesday, December 10, 2013
2:39 PMSimmons picks nat gas winners: Cabot, Range, Southwestern
- As the weather forecast calls for another blast of harsh wintry weather along the east coast after a storm last weekend, Simmons analysts pick three natural gas stocks to play the strength in the gas markets: Cabot Oil and Gas (COG -1.1%), Range Resources (RRC -0.8%) and Southwestern Energy (SWN -1.1%).
- The firm says the three stocks are cheaper on cash flow multiples than valuation sheets may show because natural gas futures prices used to make those calculations are ~11% below current spot prices.
- Also, the stocks have been middling performers of late, which may tell investors that "the move in the forward strip may not be fully reflected in the equities."
12:23 PMSterne Agee likes Consol Energy as a top pick for 2014
- Consol Energy (CNX +1.8%) is Sterne Agee's top stock pick in coal, metals and mining; the firm admires CNX's low costs and growing gas production, and sees shares rising to $60 from the current $37-$38 in the coming year.
- The firm believes investors will increasingly support CNX's steps toward becoming an energy growth vehicle; generating value for some of its capitalized, non-core thermal coal assets while de-risking its balance sheet and providing accretive growth capital for its shale holdings should allow valuation to improve as coal and natural gas markets normalize.
- Other top energy and industrial favorites: GM, DHI, HAL, EXP, EGN, RAIL, PCP, CRS.
11:58 AMTenaris to benefit from Mexico energy reform, Citi says Buy
- Tubular goods and steel pipe provider Tenaris (TS -1.3%) has a long-standing relationship with Mexico's state-run oil company Pemex and will be a major beneficiary of Mexico’s transformational energy reform, Citi says in reiterating its Buy rating on the company with $54 price target.
- Most of Mexico's resource potential is located in areas that demand high premium OCTG content, the firm says, and TS supplies almost 100% of the OCTG demand in Mexico through its just-in-time contract with Pemex.
10:57 AMPDCE Energy upgraded to Buy at Stifel, shares +2.3%
- PDC Energy (PDCE +2.3%) is upgraded to Buy from Hold with a $75 price target at Stifel, which looks for PDCE to increasingly direct its ramping drilling program toward its core acreage.
- After drilling most of its Niobrara wells in the Wattenberg Outer Core over the past three years in order to save acreage and minimize gas pipeline constraints, the firm looks for PDCE to shift its drilling emphasis to the Middle Core of the play where well economics are superior.
Monday, December 9, 2013
5:42 PMAlon USA jumped 7% today after Deutsche Bank upgrade
- Deutsche Bank upgraded refiners Alon USA Energy (ALJ +7.4%), Valero (VLO), Phillips 66 (PSX) and Delek US (DK) to Buy from Hold, citing a bullish outlook given the over-supply of light sweet crude and the limitation of the crude export ban.
- Cabot Oil & Gas (COG) also is upgraded as shares have lagged due to a combination of regional pricing and growth fears; DB believes both are overplayed and sees the stock as relatively attractive vs. Marcellus peers.
- The firm downgraded Noble Energy (NBL) and Continental Resources (CLR) to Hold from Buy primarily on valuation; NBL remains a best-in-class company but its high quality multi-year program is increasingly understood and de-risked by the Street.
11:59 AMMemorial Production Partners earns a Buy from UBS
- Memorial Production Partners (MEMP -0.5%) is initiated with a Buy rating and $25 price target at UBS, which feels investors could continue to undervalue the young MLP pending more performance history.
- The firm believes MEMP provides one of the more attractive yields (~11%) in the upstream space with what the firm feels is a limited risk profile vs. peers, it boasts a reserve base transitioning from gas-focused to a more balanced oil/gas mix, it's diversifying geographically, and distributions have been well supported and grown significantly with acquisitions.
10:47 AMValero, HollyFrontier, Marathon upgraded by J.P. Morgan on wider oil spreads
- J.P. Morgan is the latest investment banker to turn bullish on refiners, upgrading HollyFrontier (HFC +2%), Valero Energy (VLO +1.8%) and Marathon Petroleum (MPC +0.9%) on its expectation for a larger difference between Brent and West Texas oil prices.
- The firm revises its view on oil prices, forecasting Brent prices averaging $105.50/bbl for 2014 and $100.30 for 2015 vs. WTI prices of $91.50/bbl for 2014 and $85.30 for 2015, suggesting a $14-$15 differential, which should increase U.S. refining margins.
- In particular, the firm believes HFC's inland refining system is "well positioned to benefit from growth in production of disadvantaged inland North American crudes, and expect(s) HFC to capture Brent-WTI price differentials as higher gross margins across the majority of its throughput."
- HFC is upgraded to Overweight from Underweight, VLO and MPC are raised to Neutral from Underweight, and Phillips 66 (PSX +1.5%) and Tesoro (TSO +1.2%) are maintained at Overweight.
Sunday, December 8, 2013
Saturday, December 7, 2013
10:30 AMBarron's top picks for 2014
- Barron's top 10 stock picks for 2014 shows an affinity for low P/E ratios, with 6 of the group sporting multiples of 10 or lower. The 2013 picks - which are up 35.2% on average, 900 bps ahead of the S&P 500 - had five names with single-digit P/Es. This year's list:
- A depressed play on a depressed commodity, don't be surprised if Barrick Gold (ABX) gets the attention of an activist investor next year.
- Up just 11% YTD, Canadian Natural Resources' (CNQ) free cash flow is set to quintuple to $5B in 2018 once the Horizon oil-sands facility expansion is completed.
- A rising world population needs food. At less than 10x earnings, Deere (DE) is the kind of company Warren Buffett might like to buy if it became available. "Stranger things have happened," writes Andrew Bary.
- Even after gaining 55% YTD, MetLife (MET) sells for less than 10x 2014 EPS and just above book value, but bigger gains are ahead once the company is given regulatory permission to buy back stock and boost its dividend. Met's also a good hedge against rising rates, as life insurers will benefit by having higher yields to invest in.
- The rest: Citigroup (C), GM, Intel (INTC), Nestle (NSRGY, NSRGF), Simon Property (SPG), U.S. Airways (LCC).
8:25 AMMerrill Lynch unveils its top 10 stocks to buy for 2014
- BofA Merrill Lynch is a more cautious buyer of stocks after this year's gains, and its top 10 large-cap stocks to buy for 2014 are mostly under-owned and unloved on Wall Street: ADM, Caterpillar (CAT), CenturyLink (CTL), Citigroup (C), Cisco (CSCO), DaVita (DVA), Exxon (XOM), GM, NextEra Energy (NEE) and Nucor (NUE).
- On CAT, the Lynch analysts point to high foreign sales prospects for 2014, and see strength in energy-related profits offsetting weakness in global mining; the firm has a $100 price target vs. ~$90 consensus.
- XOM is considered inexpensive compared to many large-cap energy names, it is expected to continue its large share buyback program and should increase the dividend; Lynch's target is $110 vs. $96 consensus.
- NUE is the ultimate contrarian play, as Wall Street is underwhelmed by steel stocks, but Lynch sees a rebound in commercial building as a big boost for 2014 earnings; the firm has a $60 target vs. $55 consensus.
Friday, December 6, 2013
4:51 PMJPMorgan, Berenberg see Nokia improving IP monetization
- JPMorgan's Sandeep Deshpande, who started coverage on Nokia (NOK +1.9%) today with an Overweight and €8 PT today, thinks the company would be worth €15/share if it could raise its mobile device royalty rate to 1%. Berenberg's Adnaan Ahmad predicts Nokia's rate "should gradually inflate to 0.75% over time as it renegotiates existing deals and aggressively monetises its IPR pool."
- Qualcomm, which has profited far more than any company from mobile IP licensing, often receives royalty rates in the 4%-5% range, though certain firms have negotiated lower fees via cross-licensing deals.
- The sale of Nokia's phone unit to Microsoft frees the company to become more aggressive in its efforts to license its ~30K patents, since it now only needs cross-licensing deals for infrastructure gear. Thanks to the sale, Deshpande thinks there could be opportunities to unravel cross-licensing deals with firms whose IP Nokia no longer needs (such as Apple).
- He adds a recent U.K. injunction scored by Nokia in its patent battle against HTC could have big implications, since it suggests an OEM's use of baseband chips supplied by Qualcomm (a Nokia licensee) doesn't mean it's protected from having to separately pay Nokia.
3:54 PMChart Industries -7% after cautious comments from William Blair
- Consensus earnings estimates for Chart Industries (GTLS -7.1%) are likely to drop, William Blair says after meeting with management; the firm sees slower China activity, uncertainty in biomedical, and issues concerning large heat exchanger projects pressuring gross margins in 2014.
- The firm keeps a Market Perform rating on the stock and believes GTLS remains well positioned longer term.
3:30 PMGolar LNG Partners -6.2% but still seen positively after expected deal
- Golar LNG Partners (GMLP -6.2%) is defended at Clarkson Capital, which reiterates its Outperform rating and $38 price target after GMLP reveals plans to offer 5.1M units; parent Golar LNG (GLNG +0.4%) will sell 3.4M GMLP units as part of the offering.
- The acquisition of the Golar Igloo from GLNG was expected before the vessel begins service on a five-year contract to Kuwait National Petroleum in March 2014, the firm says; the transaction value is in-line with expectations, and the firm believes GMLP has solid distribution growth potential and strong unit coverage.
2:49 PMRBC pessimistic on Agnico-Eagle Mines but upgrades Franco-Nevada
- Agnico-Eagle Mines (AEM -0.2%) is downgraded to Sector Perform from Outperform with a $31 target price, down from $38, at RBC Capital, the result of lower financial estimates generated by the firm's reduced long-term gold price assumption from $1,400 to $1,300/oz.
- The firm forecasts negative free cash flow at AEM in 2014 and believes the market will need to see capital and operating guidance before it re-rates shares higher.
- Meanwhile, RBC upgrades Franco-Nevada (FNV -0.2%) to Outperform with a $53 target, up from $43, citing operating royalties and new feasibility and development stage gold assets (Brucejack, Golden Meadows, Kirkland Lake, ABX royalty portfolio), which the firm says have the potential to add 8%-12% in annual revenue.
2:27 PMInvestor sentiment in big oil stocks may rise, HSBC says
- Big oil has remained out of favor with investors, but the companies’ robust underlying cash flows aren't being recognized, and investor sentiment may shift next year, HSBC says as it tags Royal Dutch Shell (RDS.A +2.8%) and BP (BP +0.8%) with Overweight ratings.
- The sector is under-owned by large institutional investors that hold stocks for the long term, so “it may not need too much of a shift in sentiment towards the sector to prompt increased weightings,” HSBC adds.
- Shell is a "good buy-and-hold stock for long-term investors, particularly those with a cautious market outlook,” the firm says, while BP is "close to the end of [its] rehabilitation period."
1:50 PMCitrix outperforms as Stifel hikes PT; VMware also rallying
- Stifel's Brad Reback has raised his Citrix (CTXS +2.4%) PT to $74 from $70, while reiterating a Buy. Citrix has topped $60, and virtualization archrival VMware (VMW +2.9%) has rallied above $86.
- Reback's talks with Citrix's IR chief strengthened his belief the company's "uneven performance" (highlighted by its Q3 warning) is only due to sales execution and cyclical (rather than secular) headwinds. He also declares Amazon's WorkSpaces cloud PC virtualization service "more of a side-show than a meaningful enterprise threat, especially over the near-to-medium term."
- Both Citrix and VMware sold off when WorkSpaces was first announced. Though Reback disagreed, several analysts argued WorkSpaces could be a long-term threat, as its feature set grows.
- Reback likes the fact Citrix only trades at 10.8x his 2014 free cash flow estimate of $876.4M, and sees demand for Citrix's mobile software and the latest version of its XenDesktop PC virtualization platform acting as potential catalysts.
12:01 PMPandora slides, Albert Fried sees Spotify affecting royalty talks
- A day after giving up its morning gains in response to a report that Spotify plans to offer limited mobile access to its library on an ad-supported basis, Pandora (P -2.5%) is selling off on an up day for equities. A note from Albert Fried's Rich Tullo could be playing a role.
- Tullo, who downgraded Pandora to Underweight last month prior to its FQ3 report, isn't worried about the competitive threat posed by Spotify's new service, given Pandora has held its own against Spotify thus far and "the ease of use case of the Pandora platform defends Pandora’s market share."
- He is, however, worried Spotify's willingness to pay higher royalty rates to artists will affect Pandora's 2014 negotiations with recording rights organization SoundExchange (responsible for a huge portion of Pandora's royalty payments).
- Tullo: "We think 2014 will be a tough year for Pandora from a news flow perspective ... artists may be going into the negotiation from the position that Pandora needs to pay 4x to 10x more per performance."
- Pandora recently gave up on trying to get the Internet Radio Fairness Act passed, and said it would focus on lobbying the Copyright Royalty Board for rate changes.
11:56 AMPrecision Drilling +4.3%, recouping some losses after two upgrades
- Precision Drilling (PDS +4.3%) recovers nearly half of yesterday's steep loss, as Jefferies and Raymond James issue support for the stock.
- Jefferies upgrades its rating to Buy from Hold with an $11 price target, as the firm remains impressed by U.S. drilling share gains and expects next week's 2014 capex announcement to include additional newbuild awards.
- RJ upgrades shares to Outperform from Market Perform with an $11.50 target, as PDS is now the lowest valued contract driller in its coverage group, and yesterday's drop presents a "provocative entry point" for investors.
11:19 AMEnergy takeover talk focuses on Northern Oil & Gas, Approach Resources
- There's ample reason to expect some consolidation among the patchwork quilt of small U.S. exploration and production companies drilling for oil, Barron's writes, focusing on two stocks that could rise at least 50%.
- A buyer could pay up for Northern Oil & Gas' (NOG -3.7%) cash flow, broad acreage holdings, and its knowledge of multiple operators in the Bakken Shale; using NOG's enterprise value of ~$1.5B, it trades at just 5.4x trailing EBITDA, while larger Bakken peers are trading at ~9x.
- Another attractive buyout candidate is Approach Resources (AREX +0.4%), which owns some of the cheapest reserves in the Permian Basin; AREX's assets likely are worth a good deal more given the rich price recently paid by Sinochem for a 40% stake in Permian player Pioneer Natural.
10:33 AMThompson Creek balance sheet worries are overdone, RBC says
- Solvency concerns have helped push Thompson Creek (TC +1.4%) shares more than 20% lower in recent days, but RBC Capital is telling clients the concerns are overblown.
- RBC's analysis suggests TC will not run into liquidity problems unless copper prices fall below $2.50/lb. and the ramp-up at the Mt. Milligan project is much more difficult than expected and takes longer than 15 months.
- The firm maintains its Sector Perform rating and $3.50 price target on the stock.