RBC raises Callon and CDEV, cuts four energy names as valuation plays
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Callon Petroleum (NYSE:CPE) +2.8% and Centennial Resource Development (NASDAQ:CDEV) +1.7% in Wednesday's trading as RBC Capital upgraded both names to Outperform from Sector Perform with respective $75 and $11 price targets, citing relative valuation vs. peers and confidence in their operational and financial profile.
RBC also downgraded Continental Resources (CLR), EOG Resources (EOG), Earthstone Energy (ESTE) and Pioneer Natural Resources (PXD) to Sector Perform from Outperform, also based on relative valuation after their recent outperformance.
RBC's overall outlook for oil and gas E&Ps is optimistic, as valuations generally look more attractive, with many companies ready to lean into stock buybacks, and current tight commodity markets should hold up absent a deep recession.
Callon (CPE) and Matador Resources (NYSE:MTDR) are RBC's preferred small- and mid-cap names due to strong organic growth opportunities, depth and quality of inventory, and attractive valuations.
The firm's favorite large-cap names remain ConocoPhillips (COP) and Diamondback Energy (FANG).
Callon Petroleum (CPE) "may be able to generate $2B in positive free cash flow by the end of 2023," Elephant Analytics writes in a bullish analysis posted recently on Seeking Alpha.