• Oil and gas stocks rose more than any other sector in 2021, and Devon Energy's(NYSE:DVN)173% gain was the best on the S&P 500 for the year, but Bank of America analyst Doug Leggate thinks Devon and some other top names likely are ready to take a breather.
• Leggate downgrades Devon and Pioneer Natural Resources(NYSE:PXD)to Neutral from Buy, with respective $57 and $234 price targets, while cutting Marathon Oil(NYSE:MRO)and Coterra Energy(NYSE:CTRA)to Underperform from Neutral with $19 and $23 PTs, respectively.
• In addition to the ratings changes, Leggate lists Suncor Energy(NYSE:SU)among his top ideas in the sector, citing its sector-low $35/bbl breakeven price and its dividend coverage, "setting the stage for leading cash return growth off an already compelling yield proposition (~5.3% dividend yield)."
• Leggate also likes APA Corp.(NASDAQ:APA), ConocoPhillips(NYSE:COP), EOG Resources(NYSE:EOG), Exxon Mobil(NYSE:XOM), Hess(NYSE:HES), Occidental Petroleum(NYSE:OXY)and Ovintiv(NYSE:OVV)as his other top oil and gas picks for 2022.
• Overall, Leggate sees U.S. oil stocks with ~30% valuation upside, even as the market takes a more rational approach to the transition to clean energy, as the capex discipline of recent years has positioned the group to return an unprecedented amount of cash to investors.
• BofA also initiated Chesapeake Energy with aBuy rating and $90 price target.