energy stocks outperformed last year, with the sector overall growing 59% in a year when S&P 500 down 19%. It is serious performance, the kind that will always please investors, and it has kept traders and analysts alike keeping a close eye on the energy sector for the first quarter of this 2023.
So far, the energy sector has been hesitant to act. Inflation appears to be cooling, and the Federal Reserve has indicated it may accelerate future rate hikes more slowly, both developments that favor growth stocks over equities. cycle as energy.
Going forward, however, we may see oil prices rise towards the end of the first half of 2023. China is reopening its economy, which should increase demand, while Russian exports, which have been suspended stagnated when it invaded Ukraine last year, has rebounded to near pre-war levels. Increased seasonal demand in the United States, during spring and summer in the northern hemisphere, should also support prices — and that will likely be reflected in stock prices as well.
Against this backdrop, Wall Street analysts are looking at the energy sector, looking for stocks with upside potential – at 40% or higher. Potential returns to that extent deserve a re-examination, and we’ve covered two such names in detail.
TXO Energy Partner (TXO)
The first energy stock we’ll look at is a new to the mass market that just had an IPO this year. TXO Energy Partners operates as a limited general partnership, with operations in the Permian Basin of Texas-New Mexico and the San Juan Basin of New Mexico-Colorado. The company focuses on profitable exploitation of conventional oil and gas sites in its core areas of activity.
TXO Energy Partners has a diversified portfolio of conventional assets covering different types of hydrocarbon production methods. These include coal-bed methane production, located mainly in the San Juan Basin, as well as flood- and CO2-based production, mainly located in the Permian Basin. As of July 1, 2022, the company’s total verified reserves are 143.05 million barrels of oil equivalent, with 38% of the reserves being oil and 82% under development.
Shares began trading on January 27. The IPO saw the sale of 5 million units of common stock, and at closing on February 6, the company announced that its underwriters had made it. option to buy an additional 750,000 shares of common stock. Overall, the IPO raised $115 million in total proceeds. Shares are currently priced at $23.74, up 8% from the first day’s closing price.
Including this newly-publicized stock for Raymond James, 5-star analyst John Freeman considers its non-cracking record a potential net worth.
“TXO base rate of decline [is] a real difference from its peers,” commented Freeman. “TXO has a top ~9% annualized base decline rate, a product of its conventional asset base. This allows for minimal capital investment (compared to peers) to both maintain and increase production levels (no outside funding is required to finance capital investment, in contrast to previous E&P MLPs). ), which translates into a higher free cash flow profile than its unique peers.
The analyst is also a big fan of the management team, noting: “All of TXO’s management team held senior positions at XTO Energy before leading TXO. In fact, from IPO to sell XOM, XTO received ~26% annual return, outperforming S&P by about 8x in that time frame.From a technical point of view, TXO’s management team is active in more than 15 basins American shale with decades of experience.”
Consistent with this bullish stance, Freeman describes TXO stock as a Strong Buy. His price target, set at $34, suggests it has a one-year upside potential of ~43%. (To see Freeman’s achievements, click here)
Now turning to the rest of the Street, other analysts are on the same page. With 100% support on the Street, or 3 Buy ratings to be exact, the consensus is unanimous: TXO is a strong Buy. A median price target of $33.33 offers a 40% upside potential. (See TXO . stock forecast)
Offshore diamond drilling (DO)
The second energy stock we’ll be looking at is another oil and gas driller that focuses on the tough area of ocean hydrocarbon drilling. Diamond Offshore operates a fleet of deepwater rigs, including semi-submersibles and dynamic positioning drillers. The company’s super deep water drilling rig brave ocean was recently awarded a $429 million four-year contract project with Brazil’s Petrobras.
Diamond Offshore suffered heavy damage during the halo pandemic and commenced bankruptcy proceedings in April 2020 under Chapter 11. The Company completed the financial restructuring to exit Chapter 11 bankruptcy. 11 in April 2021, and the DO token resumed public trading in March 2022.
We’ll see Diamond’s Q4 2022 and full-year results tomorrow, but we can look back at the company’s Q3 2022 report to see where the company stands. For the third quarter, Diamond reported an increase in revenue for the second consecutive quarter, with peak sales of $226 million. This marks a 10% increase from the second quarter, while beating consensus estimates of $181.39 million. Diamond eventually moved from a Q2 loss of 21.9 million, or 22 cents per share, to net income of $5.5 million, or 5 cents per share diluted in profit. profit. This was a huge failure, as analysts had predicted a loss of 31 cents a share.
It was a strong turning point for the company and was supported by strong performance from the company’s operating rigs. Diamond’s deepwater drilling fleet shows an overall revenue efficiency of 97.3% and Ocean Black Hawk The rig earned a performance bonus when it completed its first well in Senegal. In addition, the drill ship vela has begun a significant contract in the Gulf of Mexico and this year there may be options for up to seven additional wells.
Analyst David Anderson, of UK banking giant Barclays, reported on Diamond and he finds the company in a logical position to generate future profits.
“Following a transition year into 2022 after bankruptcy in April 2021, we expect the DO to generate substantial EBITDA growth from 2023-2025 after nearing breakeven in 2022. This year will be just the first step, moving higher into 2024 and 2025 primarily driven by the five rigs that will be out of contract in 2024…offers a good opportunity for a re-pricing,” Anderson wrote.
This generally upbeat stance leads Anderson to rate the stock at Overweight (i.e. Buy), with a $21 price target implying a massive 79% upside potential within a year. (To see Anderson’s achievements, click here)
Several stocks fly under the radar, and Diamond is one of them. Anderson’s is the only recent analytical review of this company and it is all positive. (See Forecast of diamond reserves)
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deny the responsibility: The opinions expressed in this article are those of prominent analysts only. Content is used for informational purposes only. It is very important that you do your own analysis before making any investment.
