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 .
For further details see:
Five energy names raised, three cut at BofA in pivot to gas, defensive value