In this article, we discuss the 5 energy stocks that analysts are downgrading. If you want to read about some more energy stocks with bearish ratings, go directly to Analysts Are Downgrading These 10 Energy Stocks.
5. Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders: 45
Diamondback Energy, Inc. (NASDAQ:FANG) is an independent oil and gas firm headquartered in Texas. As peace talks between Russia and Ukraine show signs of progress, a brief lull in oil prices has once again been replaced by a bull market in light of emerging supply concerns. On February 22, the energy firm, which is trying to establish a dividend legacy, declared a quarterly dividend of $0.60 per share, an increase of 20% from the previous dividend of $0.50. The forward yield was 1.87%.
On March 8, Bank of America analyst Doug Leggate downgraded Diamondback Energy, Inc. (NASDAQ:FANG) stock to Neutral from Buy but raised the price target to $170 from $165, citing “strong share performance and elevated commodity risk” as some of the prime reasons behind the ratings update.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Harris Associates is a leading shareholder in Diamondback Energy, Inc. (NASDAQ:FANG) with 3 million shares worth more than $327 million.
In its Q4 2021 investor letter, Miller Value Partners highlighted a few stocks and Diamondback Energy, Inc. (NASDAQ:FANG) was one of them. Here is what the fund said:
“Diamondback Energy, Inc. (NASDAQ: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. Diamondback Energy, Inc. (NASDAQ:FANG) 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. Diamondback Energy, Inc. (NASDAQ:FANG) 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.”
4. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 51
EOG Resources, Inc. (NYSE:EOG) operates as an energy firm with prime interests in the oil and gas sector. The CEO of the firm was part of a group of industry executives who recently refused to testify before a House Natural Resources Committee. Raul Grijalva, the chair of the committee, had called on the executives from the highest oil and gas producing firms in the US on land and water to testify in a probe related to surging energy prices. Grijalva has called on oil firms to answer regarding a rise in oil prices despite record profits.
On March 24, TD Securities analyst Menno Hulshof downgraded EOG Resources, Inc. (NYSE:EOG) stock to Hold from Buy but raised the price target to $140 from $130, saying the shares were now close to “fairly valued” and the premium justified in light of a record of operational excellence and asset quality of the firm.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Harris Associates is a leading shareholder in EOG Resources, Inc. (NYSE:EOG) with 9.8 million shares worth more than $872 million.
In its Q4 2021 investor letter, Artisan Partners highlighted a few stocks and EOG Resources, Inc. (NYSE:EOG) was one of them. Here is what the fund said:
“EOG Resources, Inc. (NYSE:EOG), a US shale-focused E&P firm, has been a beneficiary of higher energy prices. The business enjoys a low-cost production position and a strong balance sheet which enabled EOG Resources, Inc. (NYSE:EOG) to increase production capabilities during the downturn. As energy prices recover and the industry adjusts to the new supply and demand dynamics, investors have begun to appreciate the earnings power of the business. EOG’s management focuses on return on invested capital and cash flow generation, which distinguishes it from most of the company’s competitors. We believe EOG’s high-quality management team and access to low-cost reserves are sustainable competitive advantages in a commodity industry.”
3. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 51
Devon Energy Corporation (NYSE:DVN) is an independent energy firm. A stream of negative news in the past few weeks has had a negative overall effect on the shares of the firm. On March 14, the share price of the energy giant dropped over 10% in a single day after Jeffrey Ritenour, the CFO of the firm, sold 55,000 shares of the firm valued at around $3.2 million. A proposal to tax the profits of oil firms at a rate of 50% and a Congressional hearing on high prices were also among the news items that sent shares of the firm sliding.
On March 2, Devon Energy Corporation (NYSE:DVN) was among a host of energy stocks that were downgraded to Hold from Buy by investment advisory Benchmark. Analyst Subash Chandra issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm GQG Partners is a leading shareholder in Devon Energy Corporation (NYSE:DVN) with 14.5 million shares worth more than $638 million.
In its Q4 2020 investor letter, GoodHaven Capital Management, an asset management firm, highlighted a few stocks and Devon Energy Corporation (NYSE:DVN) was one of them. Here is what the fund said:
“After a rough start to the year our two biggest energy holdings – WPX Energy rebounded materially in the last six months though energy was still our biggest detractor for the year. I’ve previously written about deciding earlier this year to direct new capital towards better businesses versus adding more to the energy sector, but given the material optionality at WPX, we opted to maintain a material exposure. Recently WPX announced an all stock merger with a larger competitor – Devon Energy – which will leave the new company with plenty of cash flow at lower oil prices, less leverage, and material upside to higher commodity prices.”
2. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 53
Chevron Corporation (NYSE:CVX) is an integrated energy and chemicals firm. On March 20, negotiations on a new labor contract stalled and workers of the firm went on strike in Richmond. The strike was also threatening other production facilities of Chevron Corporation (NYSE:CVX) but workers accepted an updated contract offer from the oil giant. The company has also raised its stake in an oil project in Myanmar despite promising to exit the country following violent protests against a coup last year.
On March 14, Morgan Stanley analyst Devin McDermott downgraded Chevron Corporation (NYSE:CVX) stock to Equal Weight from Overweight with a price target of $166, noting that the valuation of the firm was now beginning to “look expensive”.
At the end of the fourth quarter of 2021, 53 hedge funds in the database of Insider Monkey held stakes worth $6.5 billion in Chevron Corporation (NYSE:CVX), up from 51 in the preceding quarter worth $4.4 billion.
In its Q3 2021 investor letter, Goehring & Rozencwajg Associates highlighted a few stocks and Chevron Corporation (NYSE:CVX) was one of them. Here is what the fund said:
“After successfully replacing 25% of Exxon’s board of directors despite owning just 0.02% of the outstanding equity, Engine No. 1, the climate-focused activist hedge fund, met with Chevron’s management late last summer. In discussions that were later described as “cordial,” Chevron executives shared their plan to reduce carbon emissions. Subsequently, Chevron Corporation (NYSE:CVX) announced new plans to further reduce carbon output, along with their intention to appoint a new director with “environmental expertise.” Although it remains unclear exactly what Engine No. 1 is planning, rumors suggest the fund has contacted other investors, strongly suggesting they intend to launch a second campaign in the not-too-distant future.
What should Chevron Corporation (NYSE:CVX) expect?
It was recently reported by The Wall Street Journal that Exxon was considering abandoning two massive natural gas projects: the 75 trillion cubic foot (tcf ) Rovuma LNG project (capital cost $30 bn) and the 5 tcf Ca Voi Xanh offshore-Vietnam gas project (capital cost $10 bn). Exxon board members (most likely including the three supported by Engine No. 1) have publically expressed concerns about both projects. According to internal reports, these projects are among the highest CO2 producers in Exxon’s pipeline; it is no surprise these projects have been called into question. However, we find the plight of both fields to be perplexing since production would almost certainly be used to displace coal in electricity generation, cutting CO2 emissions by nearly 50%. This fact seems to be lost on the new Exxon board members.”
1. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 56
ConocoPhillips (NYSE:COP) is a Texas-based oil and gas firm. On March 24, news agency Reuters reported that the firm was planning to sell gas producing assets in the Anadarko Basin of north Texas and west Oklahoma. The sale would be made in around $300 million and the energy firm has begun paperwork to sell these to one bidder or several bidders together. The shares of the energy giant have more than doubled in the past twelve months as energy prices soared due to post-pandemic demand and a disruption in supplies from Russia.
On March 8, Bank of America analyst Doug Leggate downgraded ConocoPhillips (NYSE:COP) stock to Neutral from Buy but raised the price target to $135 from $110, noting revisions in 2022 and 2023 EPS estimates up by about 28% and 24%.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in ConocoPhillips (NYSE:COP) with 6 million shares worth more than $447 million.
In its Q1 2021 investor letter, ClearBridge Investments highlighted a few stocks and ConocoPhillips (NYSE:COP) was one of them. Here is what the fund said:
“While reducing in health care and consumer staples, we increased our exposure to high-quality names in economically sensitive areas of the market. We added to low-cost, high-quality energy names (including) ConocoPhillips (NYSE:COP). We are positive on the company’s strong balance sheets, competitive positions and exposure to an economic recovery.”
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