Oil prices fell from highs seen in June amid fears of a looming recession and demand issues in China, the world’s largest oil importer. However, tight supplies could keep oil prices high. Meanwhile, according to a Bloomberg report, the Biden administration plans to buy crude to fill the Strategic Petroleum Reserve (SPR) when prices fall below $80 a barrel. According to the report, 24% of the reserve has been depleted since March in response to the Russian-Ukrainian war. The decision to reload the SPR could prevent a further drop in crude prices. Against this volatile backdrop, we will discuss the outlook for three energy companies – ConocoPhillips (NYSE: COP), Exxon (NYSE: XOM), and Schlumberger (NYSE: SLB). Using TipRanks’ stock comparison tool, we will select energy stocks that could generate relatively higher returns from current levels.
ConocoPhillips stock (COP)
ConocoPhillips, a leading exploration and production company, posted strong second quarter results, boosted by high energy prices. Adjusted earnings per share for the second quarter soared 208% year over year to $3.91.
ConocoPhillips increased its shareholder return plan for the year to $15 billion from $10 billion, supported by strong cash flow. The enhanced expected capital return includes a Q3 ordinary dividend of $0.46 and a Q4 variable cash payout of $1.40. The company also improved its balance sheet by paying down $1.8 billion of debt in the second quarter, bringing year-to-date debt reduction to $3 billion.
Meanwhile, as part of its energy transition efforts, ConocoPhillips continues to expand its global LNG portfolio. Recent developments include the company’s participation in QatarEnergy’s North Field East LNG project and a non-binding agreement with Sempra Infrastructure to develop the Port Arthur LNG project and jointly participate in other large-scale LNG projects.
Is the COP a buy or a sell?
Last month, MKM Partners analyst Leo Mariani raised his price target for COP shares to $118 from $110 and maintained a buy rating. The analyst noted that international natural gas prices have reached record highs, due to the Russian-Ukrainian conflict and breakdowns and maintenance at some major global LNG facilities. Mariani believes that ConocoPhillips is among the few U.S. exploration and production companies that can offer exposure to skyrocketing gas prices.
With nine buys and two takes, ConocoPhillips earns the consensus strong street buy rating. The average COP price target of $128.45 implies an upside potential of 11.2% from current levels. COP stock has jumped 60% since the start of the year.
Exxon Mobil Stock (XOM)
Soaring oil and gas prices helped integrated energy giant Exxon post strong profits in the first half of this year. The company’s second-quarter EPS jumped 276% to $4.14, helped by higher prices, strong refining margins, increased production and cost controls.
Additionally, strong cash flow has helped Exxon increase shareholder returns. The company returned $7.6 billion to shareholders in the second quarter, including $3.7 billion in dividends.
Increased low-cost barrel production in Guyana and the Permian as well as continued investment in global LNG (including the Coral LNG and Golden Pass LNG projects) are expected to drive Exxon’s future growth. Additionally, tight cost controls should improve profitability. The company has already generated $6 billion in cost savings compared to 2019 and is on track to achieve more than $9 billion in annual structural cost savings by 2023.
Is Exxon a buy, sell or hold?
Recently, Piper Sandler analyst Ryan Todd cut his price target for Exxon slightly to $108 from $109 and reiterated a buy rating as he remains positive on integrated oil companies. Todd expects refining estimates to rise, driven by near-record distillate margins. The analyst expects this trend to continue through winter 2022 and into an “equally tight” 2023. Despite cost inflation, Todd remains optimistic about its upstream coverage.
Overall, Exxon earns a consensus Strong Buy rating backed by 10 Buys and two Holds. Exxon’s average price target of $112.13 implies 18.2% upside potential. Shares have jumped 55% so far this year.
Schlumberger stock (SLB)
The focus on energy security due to geopolitical concerns has increased exploration and production activities. This positively impacts Schlumberger, a leading petroleum services company that provides technologies and solutions for reservoir characterization, drilling, production and processing to the oil and gas industry.
Schlumberger’s second-quarter adjusted EPS rose 67% year-on-year to $0.50, driven by a 20% increase in revenue to $6.8 billion and margin expansion. The company updated its full-year revenue outlook to at least $27 billion, reflecting a strong teenage growth rate.
According to a Reuters report, at the recent Barclays CEO Energy-Power Conference, Schlumberger CEO Le Peuch said oil and gas producers are more concerned about securing equipment and operational performance than a sudden drop oil prices or a possible economic slowdown. The CEO also added that the international oil business has the potential to grow at a faster rate than the business in North America.
The CEO further stated that current investment rates and consistency is something he “hasn’t seen in a while.” Peuch also pointed out that Schlumberger is recording its best margins in nearly a decade and that “investors should expect further margin expansion.”
What is the target price of SLB shares?
In late July, Benchmark analyst Douglas Becker upgraded SLB stock to a Hold to Buy, with a price target of $55. Becker’s upgrade was based on a variety of reasons, including a “positive inflection point in international producer spending and activity.”
Overall, the street has a strong buy consensus rating for SLB shares based on 12 unanimous buys. The average Schlumberger stock price forecast of $50.50 implies 27.4% upside potential. SLB shares are up 32% year-to-date.
Currently, Wall Street analysts are bullish on the three energy stocks discussed above. While ConocoPhillips and Exxon have generated higher year-to-date returns than Schlumberger, analysts see greater upside potential for Schlumberger stock from current levels.
Schlumberger achieves a “Perfect 10” on the TipRanks Smart Score system. Additionally, according to TipRanks’ Hedge Fund Trading Activity Tool, SLB stock has a very positive sentiment signal. Hedge funds increased their holdings of SLB shares by 2.8 million shares in the last quarter.