PXD - Five energy names raised three cut at BofA in pivot to gas defensive value

Several oil and gas producers are now trading below fair value, Bank of America said Tuesday, seeing new opportunities to selectively re-engage in the sector, especially with exposure to an improved outlook for long-term U.S. natural gas.

BofA bumped Southwestern Energy ( NYSE: SWN ) +5.7% , Ovintiv ( NYSE: OVV ) +4.8% , ConocoPhillips ( COP ) +3.8% , EOG Resources ( EOG ) +3.6% and Canadian Natural Resources ( CNQ ) +2% to Buy from Neutral, seeing outperformance in the sector coming from gas exposure as well as the ability to withstand inflation.

But the firm also sees a "bifurcated" energy market, which led to downgrades on inflation concerns and looming tax bills for California Resources Corp. ( NYSE: CRC ) -2.9% , Denbury ( DEN ) +0.1% and Pioneer Natural Resources ( PXD ) +1.8% .

California Resources ( CRC ) was cut two notches to Underperform from Buy with a $49 price target, cut from $74, as inflationary pressures could hurt "what is already one of the highest cash break even portfolios among the U.S. oils."

Denbury's ( DEN ) production mix is 98% oil, which BofA said "does not fit our view that U.S. natural gas will drive relative performance."

For Pioneer Natural Resources ( PXD ), BofA cites "underappreciated cash tax headwinds for free cash flow and the scale of variable dividends that is its preferred vehicle for cash returns."

Pioneer Natural ( PXD ) investors are "in a terrific spot to benefit from strong, double-digit dividend yields and the stock's attractive valuation," Leo Nelissen writes in a bullish analysis posted on Seeking Alpha .

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