Parsley Energy (ticker: PE) shares rose 11.7% on Friday and were 2% higher again on Monday morning, even as the Dow Jones Industrial Average fell 0.2%. Pioneer Natural Resources (PXD) shares rose 11.5% on Friday and were 1% higher again on Monday trading. Concho Resources (CXO) and Callon Petroleum (CPE) shares also rose more than 8% on Friday.
Those price moves—and the news of the Chevron (CVX) acquisition itself—have caused Wall Street analysts to reassess oil-stock valuations. Investors are wondering who’s next?
The back story. Chevron agreed to purchase Anadarko for more than $47 billion, including debt, in one of the largest deals of the year. Anadarko stock is trading very close to the $62.83 value shareholders will eventually receive from Chevron—an indication that investors expect another, higher bid to emerge. CNBC reported Friday that Occidental Petroleum (OXY) bid $70 for Anadarko, about 11% higher than where Anadarko shares currently trade.
Anadarko stock soared more than 30% on Friday, but its shares are still 18% below their 52-week high. “[Chevron’s offer] didn’t knock anyone’s socks off,” Don Bilson, a special-situations analyst at Gordon Haskett, told Barron’s.
What’s new: Now that a few days have passed since news of the Chevron deal emerged, more analysts besides Bilson are weighing in.
JP Morgan analyst Phil Gresh thinks the Anadarko purchase makes more strategic sense for Chevron than it does for Occidental. He points out that Anadarko and Chevron have overlapping businesses in Texas’ Permian Basin, the Gulf of Mexico, and in Mozambique. Anadarko’s and Occidental’s holdings only overlap in the Permian. That means it could be harder for another firm to justify outbidding Chevron, he says.
Wells Fargo analyst Roger Read also likes the deal for Chevron. “We applaud [Chevron’s] definitive agreement to acquire [Anadarko],” he wrote in a research report on Monday. Read thinks savings from combining the two companies will tally more than the $1 billion management reported on Friday. He rates Chevron shares at Outperform with a $152 price target.
Looking ahead: The energy components of the S&P 500 remain 15% below their 52-week highs, while the Dow is only about 2% below its peak for the past 12 months. Of course, oil stocks are linked to oil prices and oil is down 22% from its 52-week high. That makes the underperformance understandable.
Still, now that Chevron has put the Permian in play, investors should consider smaller-capitalization, Texas-based oil producers. The four that moved on Friday are as good a place to start as any.
Write to Al Root at firstname.lastname@example.org