In this article, we will be talking about these 10 oil and gas stocks that analysts are downgrading. You can skip our comprehensive analysis of the oil and gas sector, and go directly to Analysts Are Downgrading These 5 Oil and Gas Stocks.
Global markets continue to suffer turmoil as there seems to be no end in sight to the Russia-Ukraine war. The reverberations of the war are evident everywhere. Oil prices are expected to remain volatile as the United States announced a ban on Russian oil imports. Analysts are also warning about an unexpected stagflationary environment amid risks of low economic growth and unchecked inflation.
Komal Sri-Kumar, president of Sri Kumar Global Strategies, said in a latest program on CNBC that the Fed has “messed it up” and we are “in for a much worse situation.”
Analysts are closely watching oil and gas stocks like Exxon Mobil Corp (NYSE:XOM), Chevron Corporation (NYSE:CVX) and BP plc (NYSE:BP) in the midst of the fluid situation as Europe weighs its possible moves to punish Russia for the war.
In this article we will take a look at some oil and gas stocks which recently received downgrades from stock analysis firms.
Analysts Are Downgrading These 10 Oil and Gas Stocks
10. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 56
ConocoPhillips (NYSE:COP) is one of the notable energy stocks that are in the limelight amid the Russia-Ukraine war. ConocoPhillips (NYSE:COP) was recently downgraded by BofA analyst Doug Leggate to Neutral from Buy. However, the analyst increased his price target on ConocoPhillips (NYSE:COP) stock to $135 from $110. The rating change is part of Leggate’s broader outlook change on the oil industry. The analyst downgraded ConocoPhillips (NYSE:COP) on the back of strong share performance and elevated commodity risk.
ConocoPhillips (NYSE:COP) CEO Ryan Lance has warned that the huge increase in oil price globally is reaching “demand destruction” levels.
As of the end of the fourth quarter, 56 hedge funds of the 924 tracked by Insider Monkey had stakes in ConocoPhillips (NYSE:COP), compared to 49 from the previous quarter.
ClearBridge Investments, an investment management firm, published its “Large Cap Value Strategy” third quarter 2021 investor letter and mentioned ConocoPhillips (NYSE:COP). Here‘s what the fund said:
“We also seized the opportunity to add to our position in energy producer ConocoPhillips (NYSE:COP) at what we considered an attractive valuation. The market rewarded this move late in the quarter after ConocoPhillips (NYSE:COP) announced its purchase of Permian Basin assets from Shell, making the company the second-largest oil and gas producer in the contiguous U.S. We view this as a positive strategic transaction for a well-run, ESG-cognizant oil producer. With this and prior transactions, the company continues to press its cost advantage and is well-positioned to benefit from ongoing energy demand recovery to pre-pandemic levels.”
9. Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders: 45
Diamondback Energy, Inc. (NASDAQ:FANG) has proved to be one of the most profitable energy stocks. It is up about 77% over the last 12 months. However, Diamondback Energy, Inc. (NASDAQ:FANG) was downgraded recently by BofA to Neutral from Buy. But the firm upped its price target to $170 from $165.
Diamondback Energy, Inc. (NASDAQ:FANG) beat Q4 estimates with wide margins. For 2022, the company guided to about 373kboe/d of production in 2022, which shows about a 4% reduction from Q4 levels.
Diamondback, like Exxon Mobil Corp (NYSE:XOM), Chevron Corporation (NYSE:CVX) and BP plc (NYSE:BP), remains a popular stock among hedge funds.
Famous investor Bill Miller’s hedge fund has a $107 million stake in Diamondback Energy, Inc. (NASDAQ:FANG) as of the end of the fourth quarter.
Miller Value Partners, an investment management firm, published its “Miller Opportunity Equity” fourth quarter 2021 investor letter and mentioned Diamondback Energy, Inc. (NASDAQ:FANG). Here‘s what the fund said:
“Diamondback Energy (FANG) returned 14.4% in the quarter as oil price rose and fell during the quarter ending the period largely in the same place that it started. The company reported strong 3Q results beating on the top and bottom line. The company reported revenue of $1.9B beating consensus of $1.5B with EPS of $2.94 beating expectations for $2.79. The beat was driven by a combination of higher volumes, higher realizations, and efficiency gains. The company increased its total production guidance for the year to 370-372mboe/d1 (up from 363-370mboe/d) while lowering Capital Expenditure (CAPEX) guidance for the second time this year to $1.49-1.53B. The company raised the dividend for the third time this year to $2/share annually while authorizing a new $2B share repurchase program. Starting in 4Q21, the company plans to return 50% of Free Cash Flow to shareholders through the base dividend and a combination of buybacks and special dividends. Finally, the CEO Travis Stice announced plans to reduce methane emissions by 70% as part of the firm’s ESG initiative.”
8. Sempra (NYSE:SRE)
Number of Hedge Fund Holders: 31
San Diego, California-based Sempra (NYSE:SRE) is an electric and natural gas infrastructure company. Sempra (NYSE:SRE) was recently downgraded by KeyBanc analyst Sophie Karp to Sector Weight from Overweight. The analyst set no price target on the stock. Karp cites valuation concerns for the downgrade and said that Sempra (NYSE:SRE) already gained value on the back of a surge in LNG prices in Europe after Russia’s attack on Ukraine. Karp thinks that most opportunities for Sempra in the industry will take a long time to materialize.
Sempra (NYSE:SRE) however saw a strong spike in hedge fund sentiment of late. Sempra (NYSE:SRE) was in 31 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 23 funds a quarter earlier.
ClearBridge Investments, an investment management firm, published its “Dividend Strategy” third quarter 2021 investor letter and mentioned Sempra (NYSE:SRE). Here‘s what the fund said:
“In utilities we completed the exit of WEC Energy Group to fund our newer position in Sempra (NYSE:SRE). Sempra (NYSE:SRE) embodies a similarly, well-positioned utility but trades at a meaningfully lower valuation. We are bottom-up investors focused on assembling a diverse portfolio of high-quality companies that can compound dividends at attractive rates over the long term. The portfolio is designed to navigate any environment. The Strategy has generally participated nicely in up markets and protected capital in down markets such as we experienced in the third quarter. As the world navigates its emergence from COVID-19, we believe we are well-positioned.”
7. Renewable Energy Group, Inc. (NASDAQ:REGI)
Number of Hedge Fund Holders: 16
Renewable Energy Group, Inc. (NASDAQ:REGI) recently agreed to be acquired by Chevron Corporation (NYSE:CVX) in a deal valued at about $3.15 billion. The deal is part of Chevron Corporation (NYSE:CVX)’s plan to boost its capacity of renewable fuel production to 100K bbl/day by 2030. Other oil giants like Exxon Mobil Corp (NYSE:XOM), BP plc (NYSE:BP) are also spending billions to shift to green energy.
The deal was the reason why Raymond James downgraded Renewable Energy Group, Inc. (NASDAQ:REGI) . The firm’s analyst Justin Jenkins downgraded the stock to Market Perform from Outperform.
As of the end of the fourth quarter of 2021, 16 hedge funds had stakes in Renewable Energy Group, Inc. (NASDAQ:REGI), compared to 15 funds in the previous quarter.
Hazelton Capital Partners, an investment management firm, published its third-quarter 2021 investor letter and mentioned Renewable Energy Group, Inc. (NASDAQ:REGI). Here‘s what the fund said:
“Since the beginning of the year, Renewable Energy Group, Inc. (NASDAQ:REGI) ’s share price has declined over 35% and nearly 60% since February when Hazelton Capital Partners cut its position in half. During the 3rd quarter, Hazelton Capital Partners repurchased another tranche, returning REGI to the Fund’s largest portfolio holding with a share count greater than where the position started the year. Renewable Energy Group continues to execute well in a market where supply and demand pressures remain both dynamic and uncertain. Beneath the veneer of a company that has a track record of meeting/beating its revenue and profit guidance, lies a management team whose main focus is on its supply chain and logistic operations. REGI leverages its competitive edge at both procuring cheap feedstocks and delivering its refined biodiesel & renewable diesel to the highest value markets while growing downstream opportunities. The company recently announced partnerships with both GoodFuels, which supplies biofuels to the marine industry and Canadian National Railway. Both companies are looking to expand biodiesel into their fuel mix to reduce their greenhouse gas emissions.
In October of 2021, Renewable Energy Group broke ground on its 250 million gallon/year (mmgy) renewable diesel refinery expansion at its Geismar, Louisiana refinery. The $950 million project is expected to come online by 2023, achieving a full run rate by 2024. With debt of $550 million and a net cash position of roughly $500 million, REGI’s balance sheet is prepared for the upcoming expansion. About 80% of the long lead items have been procured, and their prices locked in. The construction costs will be spread out over the upcoming years, with 15% of the total construction costs hitting in 2021, 45% in 2022, and the remainder in 2023. The nameplate capacity of the new refinery is 250mmgy but given that all of REGI’s refineries have an effective capacity that exceeds their nameplate, one can expect that Geismar will be producing over 400mmgy (Geismar ist refinery effective capacity should benefit from site improvements as well). That will greatly change Renewable Energy Group’s renewable diesel mix from 17% to 46% of total production and have a meaningful impact on the company’s future margins and cash flows.”
6. DT Midstream, Inc. (NYSE:DTM)
Number of Hedge Fund Holders: 17
DT Midstream, Inc. (NYSE:DTM) is a natural gas services company that operates interstate pipelines, intrastate pipelines, storage systems, lateral pipelines, gathering systems, related treatment plants, and compression and surface facilities. Credit Suisse analyst Spiro Dounis recently downgraded DT Midstream, Inc. (NYSE:DTM) to Neutral from Outperform. However, the analyst increased the price target on DT Midstream, Inc. (NYSE:DTM) to $58 from $55. The analyst cites valuation concerns for the downgrade.
Similarly, Goldman Sachs analyst John Mackay has also downgraded DT Midstream, Inc. (NYSE:DTM) to Neutral from Buy and maintained his $58 price target.
A total of 17 hedge funds tracked by Insider Monkey had stakes in DT Midstream, Inc. (NYSE:DTM) at the end of the last quarter of 2021.
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Disclosure: None. Analysts Are Downgrading These 10 Oil and Gas Stocks is originally published on Insider Monkey.
