Stop buying Exxon Mobil, Occidental Petroleum stocks as oil prices should stagnate, analyst says - Morningstar

By Tomi Kilgore

Mizuho's Nitin Kumar expects oil prices to remain stuck in tight ranges in 2024, leading to multiple stock downgrades

With oil and gas prices expected to be weighed down by fears of weakening demand as global economies slow, Mizuho analyst Nitin Kumar has downgraded the shares of a number of energy companies on Wednesday.

Included in the ratings changes, Kumar cut his ratings on the stocks of Exxon Mobil Corp. (XOM) and Occidental Petroleum Corp. (OXY) to neutral from buy. He lowered is stock price targets for Exxon Mobil to $117 from $133 and for Occidental to $63 from $72.

"Although OPEC+ continues to be supportive of the oil markets by constraining supply, fears of slower demand recovery and resilient non-OPEC supply have been a headwind in our view," Kumar wrote in a note to clients. "Although we do believe markets have overshot to the downside recently, we expect oil prices are likely to be range bound in 2024 until there is more clarity on global demand, international travel trends and China economic reopening."

Read: Oil prices end lower as crude suffers first losing year since 2020.

Also read: Crude oil sees first real 'death cross' since the pandemic plunge of early 2020.

Crude oil futures (CL.1) (CL00) bounced 0.9% in early trading Wednesday, after falling 6.5% amid a four-day losing streak through Tuesday. The futures are trading about 24% below the 13-month closing high of $93.68 reached on Sept. 27.

He believes commodity-price weakness raises the risk that earnings and cash flow estimates for 2024 will lowered by Wall Street analysts, which in turn will keep a lid on energy stocks.

Although U.S. natural-gas demand is expected to remain "robust," a potential delay in the export capacity buildout for liquid natural gas (LNG) suggests recent price weakness will be sustained for much of 2024 until inventory levels come down.

Natural-gas futures (NG00) rose 1.7% early Wednesday, but have tumbled 36% since the end of October.

Exxon Mobil's stock fell 0.2% in premarket trading, and Occidental shares gave up 0.2%. In 2023, Exxon's stock had lost 9.4% and Occidental's shed 5.2%, while the crude futures dropped 10.7% and the S&P 500 index SPX rallied 24.2%.

Don't miss: Warren Buffett boosts his bet on Occidental Petroleum's stock to $15 billion

Kumar also downgraded the shares of Antero Resources Corp. (AR), Gulfport Energy Corp. (GPOR), Callon Petroleum Co. (CPE) and Crescent Energy Co. (CRGY) to neutral from buy, and cut his ratings on shares of Southwestern Energy Co. (SWN) and Comstock Resources Inc. (CRK) to underperform from neutral.

"With commodity prices likely trading sideways in 2024, we believe investors should focus on stocks that can create their own catalyst - either through the asset base or through extraordinarily low balance sheet leverage," Kumar wrote.

Mizuho's "Top Picks" in the sector are shares of Chevron Corp. (CVX), Coterra Energy Inc. (CTRA) and Civitas Resources Inc. (CIVI), which was upgraded by analyst Bill Janela to buy from neutral.

Separately, Kumar also upgraded PBF Energy Inc. (PBF) to buy from neutral and boosted his rating on CNX Resources Corp. (CNX) to neutral from underperform.

-Tomi Kilgore

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01-03-24 0820ET

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2024-01-03 13:20:00Z
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