ConocoPhillips (COP +0.7%) works its way higher after BMO Capital raises its price target for the shares to $80 from $70 and boosts its EPS estimates through 2016, citing improving upstream margins.
In modeling COP's cash generation to test its ability to grow upstream margins at its target of 3%-5% compound annual growth rate to 2017, BMO says its analysis provides for just 2%-3% growth but sees upside if COP can grow its Lower 48 unconventional volumes faster than expected - highly possible given COP's successful development program, the firm says, as resources already have been substantially increased.
CenterPoint Energy (CNP +0.4%) is upgraded to Buy from Hold with a $29 target price at Argus, based primarily on an expanding infrastructure improvement program and the new Enable Midstream Partners MLP formed as a joint venture between CNP, OGE Energy and ArcLight Capital Partners.
CNP has a solid base of regulated utility assets and a well-managed non-regulated interstate gas pipeline and storage operation, Argus says; CNP is committed to electric and gas service expansion strategies in its regulated service territory, and sees significant growth opportunities in its non-regulated segment.
Ingersoll-Rand (IR -0.8%) is downgraded to Neutral from Outperform with a $65 price target, down from $68, at Robert W. Baird, which is shifting to a more conservative stance as it recognizes IR's strong outperformance over the past two years.
While appreciating the long-term strategic fit of Cameron's centrifugal compression business, Baird says a shift away from share buybacks towards M&A raises the risk profile of future earnings growth.
From an execution standpoint, the firm believes 2015 sets up as a more difficult year given deal integration, tougher comps in ThermoKing, and stubbornly slow Institutional end markets.
Kinder Morgan's (NYSE:KMI) price target is raised to $45 from $40 at RBC Capital, which remains positive on KMI's proposed acquisition of its MLP entities; it rates shares at Outperform (Briefing.com).
In the firm's view, KMI has effectively created an MLP in a corporate structure, given its cash tax savings, payout ratio and cost of capital, and it believes the transaction better positions KMI for faster dividend growth.
RBC also raises its target for Kinder Morgan Partners (NYSE:KMP) to $109 from $83, seeing the deal as the best alternative for the Kinder complex given the cost of capital at KMP, adding that ~46% of the distribution currently accrues to KMI.
Although revenue should grow in H2 on higher production and possible stronger iron ore prices, costs should increase too, Bernstein says while maintaining its thesis that supports Vale’s high-quality assets and its growing presence in base metals.
The firm expresses some concern that Vale's ambitions to regain the market share it has lost in the iron ore market over the past decade "could translate into a relaxation in the company’s capital discipline."
Susser Petroleum Partners' (SUSP +3.3%) price target is raised to $57 from $48 at RBC Capital, which believes SUSP is poised for double-digit distribution growth over the next several years as Energy Transfer Partners' acquisition of SUSP's parent increases the inventory of dropdowns available to SUSP.
Greater scale and geographic diversity could better position SUSP to complete accretive third-party acquisitions, the firm says.
Ultrapetrol's (ULTR -1.2%) price target is lowered to $4.50 from $5 at Stifel, noting Q2's EBITDA contribution from the River segment was $14M below its expectations due to high water levels resulting in delays for 22% of cargo in the quarter and also lower than expected contribution from barge sales as ULTR shifted more of its construction capacity to the owned fleet.
The firm believes Southern Cross' increased stake in ULTR to 85% from 67% could precipitate a buyout of the remaining 15% of public equity, closing the gap between current valuation and the sum of the parts (Briefing.com).
General Electric (GE +1.4%) hits $26 after Credit Suisse reinstates coverage with an Outperform rating and $30 price target, which looks for GE's industrial margin expansion to accelerate in 2015.
The firm thinks the current GE share price implies a mid-teens 2016 P/E multiple for the industrial businesses, which looks cheap given the high share of profits accruing from aftermarket (80%-90%); by that time, "services/AM businesses should/will be valued more highly than cyclical assets" after GE’s segment profits barely declined during the last downturn.
Halcon Resources (HK -0.8%) is upgraded to Buy from Hold with an $8 price target at MLV & Co., which notes HK has suffered a rocky road to this point but believes its growth outlook has been enhanced by a focus on three core oil plays.
MLV says it is encouraged by consecutive quarters of better than expected execution, highlighted by a 2014 production guidance raise.
The firm says the market can't keep ignoring HK's continued execution, with the recent pullback in the stock unwarranted and representing a compelling entry point.
Citing the company's ability to benefit from improving IT spending, Monness Crespi has upgraded H-P (HPQ +0.9%) to Buy ahead of the IT giant's Wednesday FQ3 report.
Cisco reported strong July quarter enterprise/SMB order growth last week (carriers and emerging markets were a different story), and NetApp mentioned during its earnings CC it's seeing stronger enterprise demand. Both companies added the U.S. was an area of strength.
IDC forecast 4.1% 2014 IT spending growth in May, with pent-up demand in developed markets offsetting emerging markets softness. H-P continues trading near a 52-week high of $36.21, and is up 28% YTD.
Following a strong 2014 rally fueled by healthy industry growth and hopes for more consolidation, Goldman has lowered its rating for the semi industry to Cautious from Neutral.
The firm thinks industry shipment growth will slow down, and sees risk to Q4 estimates. InvenSense (NYSE:INVN) has been cut to Neutral, NXP (NASDAQ:NXPI) to Sell, and Maxim (NASDAQ:MXIM) to Buy from Conviction Buy.
Benchmark aired cautious remarks about the sector last month, noting supply chain inventories have been rising and Taiwanese electronics growth (seen as a proxy for chip demand) has been slowing down.
Regarding InvenSense, analyst Mark Delaney notes shares have hit Goldman's $25 target and have soundly outperformed the S&P 500 since being added to Goldman's Americas Buy list near the end of 2011. He adds a key near-term catalyst (share gains at Apple) has played out.
Barron's cover story is positive about oil-services giant Schlumberger (NYSE:SLB), whose recent acquisitions have catapulted SLB into a position of leadership in extracting liquids from shale basins, part of the booming business in hydraulic fracturing that's reshaping the industry.
The acquisitions fix one of the company's few week spots, and should put it further ahead of smaller rivals like Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).
CEO Paal Kibsgaard believes SLB can achieve a 10x increase in operational reliability, reduce inventory levels by 25%, boost asset utilization by 100%, raise productivity by 20%, and lower unit support costs by 10%. By 2017, he expects to boost EPS to $9-10 (from $5.70 this year).
Despite an 18% gain this year, shares looks cheap at about 9x estimated 2015 EV/Ebitda and eight times estimated 2016 EV/Ebitda vs. a historical multiple of 10 to 11.
Cypress Energy Partners (CELP +1.2%) upgraded to Outperform from Neutral with a $27 price target, up from $24, at Robert Baird, after CELP's strong Q2 performance from its water segment while management painted a picture of continued growth in the underlying business with potential M&A sweeteners to follow.
Given sound fundamentals, the firm raises its estimates above guidance for the balance of the year, which drives its share price target higher.
Energy XXI (EXXI -1.5%) is downgraded to Sector Perform from Outperform with a reduced $28 price target from $34 at Howard Weil, which says that given the company's prior issues integrating the Exxon acquisition, investors could question why the integration of the EPL acquisition will perform any better.
EXXI is now an execution story, the firm says, and its ability to meet or exceed production guidance as well as being more transparent with investors about future expectations will drive performance going forward.
Canaccord Genuity maintains its Buy rating, still liking EXII for its oil-weighted asset base, the Gulf of Mexico horizontal drilling program, a history of generating free cash, and potential upside from its exploration program, but cuts its price target to $30 from $36 following disappointing production guidance (Briefing.com).
The firm notes PLUG has booked $87M YTD, slightly better than the $80M shared on the Q1 call in May; bookings tend to be lumpy, however, and management expects to exit Q3 with ~$115M booked YTD.
PLUG is addressing a mix of issues with its high-powered stack at customer sites, but management does not view these as major problems, and is working with service personnel and its suppliers to fix the problems.
Roth also notes PLUG’s goal of deploying 5-10 sites with Wal-Mart during 2015, and discussions to assume majority control of its European JV by early 2015.
Ultra Petroleum (UPL +3.7%) is upgraded to Buy from Neutral with a $29 price target, up from $26, at UBS, based on valuation as the stock trades at a discount to peers based on EV/EBITDA and price/NAV.
UBS also cites the "materially accretive" asset swap with Shell, 2014-18 cash flow per debt adjusted share growth is expected to outpace peers, and the bear case from UPL was removed given more conservative oil production guidance, improved capital efficiency and accretive estimate revisions.
"Demand from enterprises improved (especially in the U.S.), with a notable increase in [$1M+] million deals. We believe this data point, combined with results from CDW, SNX, IM, STX & WDC suggests a 2H spending cycle in US commercial," writes Needham's Richard Kugele, who has upgraded NetApp (NTAP +5.2%) to Buy following its FQ1 beat and in-line FQ2 guidance.
Pac Crest's Brent Bracelin is pleased with NetApp's gross margin gains, which he thinks highlights the company's "software-intensive model and technology differentiation." He also notes attach rates for NetApp's clustered storage software "is now approaching 50% on mid-range products, more at the high end." NetApp mentioned on the CC (transcript) shipments of clustered nodes rose 177% Y/Y.
Also mentioned: NetApp's anticipated FlashRay systems (built from the ground up to handle flash storage) will begin shipping next month, thus filling a hole in the company's lineup as it squares off against purpose-built flash hardware from EMC, IBM, and a slew of startups. Ahead of the launch, shipments of other all-flash products rose 48%.
The company still has its skeptics following many quarters of soft growth. Credit Suisse's Kulbinder Garcha: "NetApp’s LT growth potential remains depressed reflective of changing enterprise focus, commodity infrastructures, and competitive pressure from EMC in mid-range and nimble startups."
NetApp's branded revenue rose 1% Y/Y in FQ1 to $1.36B. OEM revenue, hurt by the winding down of the IBM deal, fell 23% to $129M.