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EOG Resources: Deutsche Bank Cuts Stock To Hold As Shift To Recovery Takes Hold

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Deutsche Bank’s Ryan Todd said EOG Resources Inc EOG 2.22% continues to be “a best-in-class operator with leading asset quality.” However, Todd cautioned, “[G]iven significant outperformance, aggressive multiple expansion and limited NAV upside in a move to $65/bbl crude, we see greater potential upside elsewhere in the sector.”

Todd downgraded the rating on EOG Resources from Buy to Hold, while lowering the price target from $85 to $83.

Limited Upside

Although the company has a robust backlog that could offer a positive tailwind for capital efficiency in 2017, Todd believes that the shares are fully valued at present, with limited upside, compared to peers.

The stock has outperformed peers by 16–20 percent since its previous peak in June 2014, such that EOG Resources’ relative premium to peers, the analyst mentioned, has reached a level that can no longer be justified by the company’s operational execution or balance sheet.

Going forward, Todd believes that there could be upside for “equities skewed toward the oil beta names.”

Looking Ahead

Todd estimates EOG Resources’ outspend for 2016 between $500 million and $850 million, inclusive of the dividend.

“Although we do not see meaningful risk to the balance sheet, the combination of oil leverage and significant outspend has moved EOG’s balance sheet metrics roughly to the middle of the pack relative to peers,” Todd noted.

Apr 2016Stifel NicolausDowngradesBuyHold
Mar 2016Cowen & CompanyInitiates Coverage onMarket Perform
Mar 2016Deutsche BankMaintainsBuy

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