Barclays Turns Positive On Oil, Upgrades Murphy Oil

Barclays has upgraded Murphy Oil Corporation (NYSE: MUR) shares to Overweight from Equal Weight on valuation.

Rating, Target And Estimate

"We think the risks associated with the stock are already well known and have been priced in by the market. Despite their strong performance YTD, the shares continue to trade at a significant discount to NAV and relative to other large cap E&P names," analyst Paul Cheng wrote in a note.

Cheng also raised his price target on the stock to $42 from $33. However, the analyst reiterated his full-year EPS forecast of $-1.25.

A Broader Look

Meanwhile, Barclays has upgraded its sector outlook to Positive and said energy could be one of the S&P's best performing sectors over the next 12–18 months, and estimates the group's current median potential upside at about 28 percent.

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"We think the global oil market is currently in the midst of a continued upward trajectory in which Brent could average $85 by 4Q17 and $80–$90 between 2018 and 2021. We estimate our group of major oil companies is trading at a 19 percent discount to their net asset value (NAV), based on a Brent oil price of $80 per barrel," Cheng elaborated.

Cheng noted that the United States has become the world's new short-term swing producer and will need $80 oil to generate sufficient cash flow to support an annual production growth rate of 1 million b/d.

"We forecast US production will need to rise by 1 mmb/d annually between 2018–2021 to bridge the supply gap, assuming annual global oil demand growth rate of roughly 1.1–1.3 mmb/d," Cheng highlighted.

Other Names

On a risk-adjusted basis, the analyst said ConocoPhillips (NYSE: COP) and Husky Energy Inc (USA) (OTC: HUSKF) offer the best value over the next 12 months, while Petroleo Brasileiro SA Petrobras (ADR) (NYSE: PBR) and Exxon Mobil Corporation (NYSE: XOM) offer the least.

At time of writing, shares of Murphy Oil were down 1.34 percent on the day to $31.67.

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