The oil and gas industry is one of the largest beneficiaries of the current geopolitical environment. Record high fuel prices, robust underlying demand, and limited supply resources have all multiplied the lucrativeness of the sector.
However, it’s always advisable to back up our conclusions with the insights of an expert. Wall Street analysts are particularly at an advantage, with in-depth company and sector-wide analysis and a sound investment thesis.
Today in our “Expert Spotlight”, we will look at one of the five-star analysts in the TipRanks universe, and learn about his view on the oil and gas sector stocks.
Expert Analyst: Vincent Lovaglio
Vincent Lovaglio is an equity research analyst at Mizuho Securities, with expertise in exploration and production (E&P) companies in the oil and gas industry. Before this, Lovaglio worked at Wolfe Research, Cowen and Company, and Dahlman Rose & Co. in various research roles.
Lovaglio is a CFA charter holder and holds a Bachelor of Arts in Financial Economics from Columbia University.
Lovaglio’s Standing Among TipRanks’ Experts
According to the TipRanks Star Ranking System, Lovaglio ranks #2 out of the 7,878 analysts in the TipRanks universe. Additionally, out of all the 18,225 overall experts tracked by TipRanks, the five-star analyst holds the #4 position, based on his success rate, returns generated, and the large number of recommendations made by him.
Notably, Lovaglio boasts a 94% success rate on the overall 144 ratings given by him in the past year. Moreover, his calls have generated an average return of 59.7% over the year. Similarly, compared to the S&P 500 (SPX) and the basic materials sector performance, his ratings delivered an average return of 63% and 52.9% respectively during the same period.
To date, Lovaglio has given a total of 281 ratings, out of which 72.2% have been Buy ratings, 27.4% have been Hold ratings, and a meagre 0.4% have been Sell ratings.
The analyst’s most profitable call was on Comstock Resources (CRK), a developer and explorer of oil and natural gas. Lovaglio’s Buy rating on CRK stock between the periods of April 20, 2021, and April 20, 2022, generated a humongous return of 269.8%.
Vincent Lovaglio’s Most Notable Calls
With the analyst’s superb track record in mind, let’s take a deep dive into Lovaglio’s views on two companies from the E&P sector.
ConocoPhillips (COP)
ConocoPhillips is one of the largest global oil and gas players engaged in the exploration, production, transportation, and marketing of crude oil and natural gas across 13 countries. COP stock has gained 32.8% year-to-date amid an uptick in fuel prices and rising demand due to supply constraints emerging from the Russia-Ukraine war.
The company kicked off 2022 with outstanding first-quarter results. The oil giant posted adjusted earnings of $3.27 per share, jumping a whopping 373.9% compared to Q1FY21 and significantly outpacing consensus estimates of $2.70 per share. The major earnings jump was boosted by record high oil prices and volumes. Similarly, total revenues and other income rose 82.7% year-over-year to $19.29 billion, accelerated by the same factors.
COP recorded production of 1.747 million barrels of oil equivalent per day (MMBOED) in Q1, and for Q2, the company projects a decline in production of between 1.67 and 1.73 MBOED due to seasonal turnarounds in Canada and Europe, coupled with poor weather experienced in Bakken in April. Additionally, for the full year fiscal 2022, COP projects production to be around 1.76 MMBOED.
On the Capex front, COP raised its guidance to $7.8 billion (from $7.2 billion) for 2022 due to inflationary pressure and higher partner-operated spending.
Remarkably, the company raised its targeted 2022 return to shareholders by 25%, to $10 billion. COP also declared a regular quarterly common dividend of $0.46 per share, generating a current dividend yield of 2.79%, as well as a third-quarter variable return of cash (VROC) payment of $0.70 per share.
Analyst Lovaglio has a Buy rating on the COP stock with a price target of $150, which implies 54.3% upside potential to current levels.
Lovaglio is particularly encouraged by the higher targeted returns to shareholders in Q1 and the steady reduction in leverage ratio, which could bolster future dividend outflows.
Moreover, the analyst is motivated by the company’s “lower sustaining capital requirements, relatively greater investment in longer-cycle which adds visibility on longer-term resource development and production, all of which contribute to greater confidence in (1) through cycle cash returns and (2) relatively greater regular dividend payout.”
Echoing Lovaglio’s enthusiasm, other Wall Street analysts have also awarded the stock a Strong Buy consensus rating based on 12 Buys and two Holds. The average ConocoPhillips price forecast of $128.69 implies 31.52% upside potential to current levels.
Interestingly, Lovaglio has a 100% success rate on the COP stock, with an average profit on the stock of 51.8%.
EOG Resources (EOG)
EOG Resources is also an American company engaged in the exploration, development, production, and marketing of crude oil, natural gas, and natural gas liquids. Similar to COP, EOG’s stock has gained 32.3% year-to-date.
EOG surpassed earnings expectations in its Q1FY22 results. Adjusted earnings of $4.00 per share leaped 146.9% year-over-year and came in 29 cents higher than the consensus estimates.
However, total operating revenue of $3.98 billion grew a modest 7.9% year-over-year, but fell short of analyst estimates of $5.76 billion due to a huge mark-to-market loss in financial commodity derivative contracts.
Notably, the company also declared a special dividend of $1.80 per share and a regular quarterly common dividend of $0.75 per share, resulting in a current dividend yield of 4.89%. What’s more, the company has committed to returning at least 60% of free cash flow to shareholders each year.
In Q1, EOG produced 79.5 million barrels of oil equivalent (MMBoe), growing 13% year-over-year and remaining almost flat sequentially.
Analyst Lovaglio has a Buy rating on the EOG stock with a price target of $172, which implies 45.8% upside potential to current levels.
Lovaglio was encouraged by the company’s FY22 oil guidance of 460 kbd, reflecting a 3.8% year-over-year growth, and the capital spending budget, which was maintained at the current levels of $4.3 billion to $4.7 billion.
Commenting on his optimistic view of EOG, Lovaglio said, “At $95 per barrel WTI, EOG expects to generate ~$8Bn of free cash flow this year, implying a minimum $4.8Bn of cash return or 6.5% as a baseline. EOG’s balance sheet is also quickly building a large net cash position, affording the company significant flexibility through the price cycle and capacity to increase payout later in the year.”
Other analysts on the Street, however, are cautiously optimistic about EOG stock with a Moderate Buy consensus rating based on 16 Buys and six Holds. The average EOG Resources price forecast of $150.37 implies 25.72% upside potential to current levels.
Remarkably, Lovaglio has a 100% success rate on EOG stock, with an average profit on the stock of 48.8%.
Concluding Thoughts
Lovaglio is bullish on the entire E&P sub-sector and has awarded a Buy rating to both COP and EOG stocks. However, the other analysts on the Street have slightly differing views on EOG stock. Moreover, ConocoPhillips has a Smart Score of “Perfect 10,” which means it has a high probability of outperforming market expectations. All of this concludes that, currently, COP may be a better choice than EOG.
All in all, in times of market turbulence, when most of the logic goes for a toss, it would be wise to follow the investment rationale of our Top Experts to make safer and higher returns on your investible corpus.
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