Energy prices are falling fast, but oil-and-gas stocks Exxon Mobil Corp. (NYSE: XOM), Diamondback Energy Inc. (NASDAQ: FANG), EOG Resources Inc. (NYSE: EOG), and Range Resources Corp. (NYSE: RRC)are among the most upgraded in the past 90 days.
So what’s behind the optimism? After all, energy stocks can decline as gas prices fall. Lower gas prices often reduce revenues for energy companies, impacting profitability.
Investors may react by selling energy stocks, anticipating reduced earnings.
But it’s not always so simple: Other factors, such as global demand and geopolitical events, also influence energy stock movements, as we’ve seen in the past couple of years.
Investors also like an emphasis on new technologies.
Exxon Mobil: Boosting new technology spending
For example, in the case of behemoth Exxon Mobil, the company said in early December that it would target yearly project spending in a range between $22 billion and $27 billion through 2027. Much of that spending will be focused on traditional fossil fuel projects, but Exxon Mobil is also allocating more resources to low-carbon and lithium technologies.
Acquisitions are also playing a role in analysts’ upgrades of Exxon Mobil. It completed its acquisition of pipeline operator Denbury in November, and in October, announced an all-cash deal to acquire Permian Basin producer Pioneer Natural Resources Co. (NYSE: PXD). Both of those will contribute to Exxon Mobil’s long-term targets.
MarketBeat’s list of most upgraded stocks shows 9 upgrades for Exxon Mobil, with analysts’ consensus view being “moderate buy.”
Diamondback: Slithering to upgrades
Diamondback Energy has received 12 upgrades. Diamondback analyst forecasts show a consensus view of “buy” with a price target of $182.75, an upside of 19.56%.
With merger-and-acquisition still going strong in the energy sector, analysts believe Diamondback may be on the hunt for companies to buy.
In September, Diamondback subsidiary Viper Energy Inc. (NASDAQ; VNOM) said it would acquire some mineral and royalty interests from Warwick Capital Partners and GRP Energy Capital in a deal valued at about $1 billion.
However, analysts are looking for bigger deals from Diamondback, including outright acquisitions of large publicly traded companies.
Diamondback drills in the West Texas Permian Basin. With a forward price-to-earnings ratio of 8, the stock may be at an attractive valuation, relative to the Energy Select Sector SPDR Fund (NYSEARCA: XLE)’s forward P/E of 10.2.
The company also maintains a strong free cash flow position.
Analysts expect the company to earn $20.77 a share in 2024, an increase of 11%.
Diamondback stock has outperformed its sector this year.
EOG: Wall Street sees earnings growth returning
Analysts expect oil-and-gas producer EOG Resources to resume earnings growth in 2024, similar to patterns for other energy companies.
With 2022 revenue of $22.49 billion, EOG is among the largest independent energy producers, with the bulk of production coming from U.S. shale fields, and some from Trinidad. It’s also the largest independent producer by market cap, weighing in at $69.51 billion.
“The firm differentiates itself by finding prospective areas before peers catch on, enabling it to secure leasehold at attractive rates, rather than overpaying for land after the market overheats,” wrote Morningstar analyst Katherine Olexa.
MarketBeat’s EOG Resources analyst forecasts show a consensus view of “moderate buy” with a price target of $145.14, an upside of 21.89%.
The stock has had 10 analyst upgrades in the past 90 days.
Range Resources: Analysts see double-digit upside
Range Resources is a mid-cap explorer and producer that’s received 11 upgrades.
The Range Resources analyst forecast shows a consensus view of “hold,” with a price target of $35.50, an upside of 18.06%.
The stock is tracked in the SPDR S&P MidCap 400 ETF Trust (NYSEARCA: MDY). It’s been outperforming its index on a year-to-date basis but has been correcting since November, missing out on the broad market rally.
The company’s operations are focused on the Marcellus Shale in Pennsylvania. It specializes in natural gas but also has liquid natural gas production. While LNG itself is not a direct replacement for crude oil, its role in the energy market and specific characteristics make it a substitute in many situations.