As any investor knows, the oil industry has been battered recently, but the possibly permanent disruptions have paved the way for some energy companies to outperform while others fall behind.
Thomson Reuters studied the trajectory of the primary sources of power in a report released this week, Powering the Planet 2045. It cites changing landscape in Middle East oil production, increased shale drilling, greater gas consumption and concern about greenhouse gas emissions as primary factors affecting the industry and prices.
As the oil prices dropped through 2014, hedge funds have also run from the stocks in the fourth quarter. But as crude prices showed signs of a bottom in the first quarter, hedge fund interest began to return.
In addition to understanding the landscape, an analyst revision model ranked oil stocks based on whether they are likely to upgrade or downgrade them. On a scale of 1-100, a higher score meant higher likelihood of upgrade and lower scores indicate higher likelihood of downgrade.
The model found that more than half of exploration and production companies received a score lower than 20, the bottom quintile for all oil companies, meaning analysts feel gloomiest about their future.
In particular, Apache (APA, Financial), Marathon Oil (MRO, Financial) and Southwestern Energy (SWN, Financial) were most panned, with scores of 1.
The highest rated were Oneock (OKE, Financial) with a score of 97, Diamond Offshore Drilling (DO, Financial) with a score of 96, and Valero Energy (VLO, Financial) with a score of 79.
A GuruFocus analysis shows some agreement and differences with the attractiveness of analysts’ picks based on several signs.
Downgrades
Apache (exploration and production)
Price: One year high
P/B ratio: 10-year high
P/S ratio: 5-year high
Forward P/E: 55.25
DCF Fair Value: Negative
Marathon Oil (exploration and production)
Piotroski F-Score: Low
Per share revenue: Declined for past five years
P/B ration: 0.58
Five-Year EBITDA rate: -31.5%
DCF Fair Value: Negative
Southwestern Energy Co. (exploration and production)
Piotroski F-Score: Low
Gross Margin: Long-term decline
Long-Term Debt: Keeps issuing new debt over past three years
Per share revenue decline: Over 12 months
Forward P/E ratio: 86.96
P/B ratio: 4.78
DCF Fair Value: Negative
Upgrades
Oneock Inc. (Midstream)
DCF: Fair value $13.91 vs. $43.73 share price
Per Share Revenue: 5-Year Decline
Long-Term Debt: Keeps issuing new debt
Price: Near one-year high
P/B ratio: 10-year high
P/S ratio: 10-year high
Diamond Offshore Drilling (oil and gas drilling)
DCF Fair Value: $5.35 vs. price of $24.30
Per Share Revenue: Five-Year Decline
Gross Margin: Long-term decline
P/E ratio: 10-year high
P/S ratio: 1-year high
P/B ratio: 0.79
Valero Energy (refining and marketing)
DCF Fair Value: $89.68 vs. price $55.72
P/B ratio: Two-year low
Per Share Revenue: Decline 12 months
Dividend yield near 10-year high
P/E ratio: 6.64
P/B ratio: 1.28
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