The sell-off is done and it’s time to buy in again. No, unfortunately that’s not a prognosis for the stock market in general, but rather CNBC’s Jim Cramer’s recommendation for investors looking at the oil sector.
“The charts, as interpreted by Carley Garner, suggest that the oil speculators have been mostly wiped out,” said the Mad Money host on Tuesday, “so it’s time to buy the dips because she wouldn’t be surprised at all if crude can rally another $20 from here.”
According to Cramer, Garner’s forecast of an oil price wash-out is taking shape, and as China’s economy begins to recover and the Biden administration moves to restock the Strategic Petroleum Reserve whenever prices go below $70 per barrel, oil prices may be about to take off again.
So, if that is indeed panning out, then oil stocks could be in for a bump too. With this in mind, we delved into the TipRanks database and pulled up the details on three names that potentially stand to gain from the rebound. All are rated as Strong Buys by the analyst consensus and primed to push ahead over the coming months. Let’s check the details.
Magnolia Oil & Gas (MGY)
We’ll start with Magnolia Oil & Gas, a company that does what it says on the tin. MGY is an oil and gas exploration and production specialist with operations mainly based in the core of the Eagle Ford Shale and Austin Chalk formations in South Texas. Its assets comprise of ~23,600 net acres in Karnes and ~450,000 net acres in the Giddings area, the latter an expanse the company considers as an emerging oil play with meaningful upside and substantial inventory.
And going by the latest set of quarterly results, that is indeed the case. In Q3, total production increased by 21% from the same period a year ago and by 10% quarter-over-quarter to 81.5 thousand barrels of oil equivalent per day (“Mboe/d”). The total volume not only came in 7% above the high end of the production range, but also amounted to a quarterly record.
The result was revenue of $482.97 million, a 69.4% year-over-year increase, whilst beating the analysts’ forecast by $40.36 million. Likewise on the bottom-line, EPS of $1.29 came in $0.12 above the $1.17 predicted on Wall Street. The company now anticipates full-year production growth will be around 15% to 16% above 2021 levels, an increase on the prior expectation of 12% to 14% production growth. The company also repurchased 3 million shares during the quarter, making the year-to-date tally reach 13.1 million.
The latter act has attracted the attention of Truist analyst Neal Dingmann, who writes: “Magnolia’s strategy since day one has always been about needing to reinvest only a small percentage of earnings to grow the business allowing the majority of capital to be distributed back to investors. The plan remains the same with the company needing only to reinvest about 1/3 of EBITDA to keep production stable; much of this is thanks in part to continually improving Giddings well results.”
“Even with no change to our two rig 2023 forecast, we estimate 2023 sequential production growth of 10%+ helping drive strong FCF and shareholder returns setting up for yet another notable year,” the analyst summed up
Accordingly, the 5-star analyst rates MGY a Buy, backed by a $39 price target. The implication for investors? Upside of 67% from current levels. (To watch Dingman’s track record, click here)
The stock has picked up 5 analyst reviews over recent weeks, which break down as 4 to 1 in favor of Buys over Holds, making for a Strong Buy consensus rating. At $32.60, the average target makes room for 12-month gains of ~40%. (See MGY stock forecast on TipRanks)
Matador Resources Company (MTDR)
The next oil stock we’re looking at is Matador Resources Company. Its operations are principally concentrated in the Delaware Basin of Southeast New Mexico and West Texas, specifically the oil and liquids-rich areas of the Wolfcamp and Bone Spring plays. There are also operations in the Haynesville shale and Cotton Valley plays in Northwest Louisiana, as well as the Eagle Ford shale play in South Texas. Additionally, the company oversees midstream operations, via a 51% ownership stake in San Mateo Midstream.
Befitting the 2022 narrative, the company posted strong quarterly results, as was the case in the Q3 print. Revenue climbed by 78% year-over-year to $840.93 million, ahead of the Street’s call by a significant $100.7 million. Adj. EPS improved by 114% from the same period a year ago to $2.68 whilst trumping the $2.53 forecast.
The company achieved average oil and natural gas equivalent production of more than 105,000 barrels of oil and natural gas equivalent (BOE) per day, a 4% above the guide and for the cherry on top, the company raised the midpoints of its 2022 total oil and natural gas production outlook.
It’s the sort of performance that has drawn applause from RBC analyst Scott Hanold.
“MTDR’s robust financial position provides optionality that we think will include further debt reduction, increased shareholder returns, and opportunistic growth that could include acquisitions and/or increased activity. Management will likely be fairly measured with using cash, so we anticipate maintaining a larger cash balance for continued flexibility and as a cushion to commodity price volatility,” Hanold noted.
To this end, Hanold thinks there’s more room to run. Along with an Outperform (i.e. Buy) rating, the 5-star analyst’s $78 price target makes room for one-year gains of 34%. (To watch Hanold’s track record, click here)
The rest of the Street is fully on board here. With Buy ratings only – 7, in total – the stock naturally claims a Strong Buy consensus rating. The forecast calls for share appreciation of ~31% over the coming year, considering the average target clocks in at $76.29. (See MTDR stock forecast on TipRanks)
Permian Resources Corporation (PR)
The last oil stock we come across is Permian Resources. Headquartered in Midland, Texas, as its name implies, this independent E&P company’s operations target the Permian Basin, with its oil and gas properties centered in the core of the Delaware Basin. Permian Resources is essentially a new company. Known before as Centennial Resource Development, it was formed via a merger of equals with Colgate Energy. The transaction closed on September 1, making it the biggest pure-play E&P company in the Delaware Basin.
In the first report since the merger (to which the combined entity made a one-month contribution), the company dialed in a strong showing. The Q3 top-line haul showed $549.78 million, amounting to a 90.6% increase on the same period last year whilst also coming in $30.93 million above the Street’s forecast. Similarly, at $0.70, diluted EPS increased significantly from the $0.12 reported in the year ago quarter and easily beat the $0.45 anticipated by the prognosticators.
Furthermore, the company announced a return of capital program, whereby it will provide shareholders with at least of 50% of free cash flow after base dividend (currently a $0.05/share quarterly fixed dividend, yielding 2% annually).
RBC’s Scott Hanold is impressed with what’s on offer and expects more of the same moving forward. He writes, “The inaugural quarter for the new Permian Resources (CDEV +Colgate) demonstrated the combined benefits to operations, and we expect to see more progressing into 2023.”
“Management is still confident in its 2023 outlook provided in early September and expects to see similar, if not better, capital efficiencies in next year’s program compared to prior years owing to the benefits of scale, and expected efficiency gains on the D&C (drilling and completions) side with shared best practices,” Hanold went on to add.
In line with his optimistic approach, Hanold rates PR shares an Outperform (i.e. Buy) and his $12 price target suggests a 31% potential upside for the coming year.
And what about the rest of the Street? Barring one skeptic, all 8 other recent analyst reviews are positive, making the consensus view here a Strong Buy. Going by the $12.33 average target, the shares are expected to yield returns of ~34% over the coming year. (See PR stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
