Oil Stocks Tumble After OPEC Decision: What Wall Street's Saying

NEW YORK (TheStreet) - Oil stocks tumbled on Friday following the Organization of Petroleum Exporting Countries' decision not to cut oil production despite indications of global oversupply.

OPEC said at a meeting on Thursday that it would maintain current levels of 30 million barrels a day "in the interest of restoring market equilibrium," a statement from the group read.

Exxon Mobil (XOM) tumbled 4.2%, Chevron (CVX) fell 5.4% and BP (BP) dropped 5.5%. Elsewhere, Halliburton (HAL) plunged 10.8%, while Kinder Morgan (KMI) was down 2.3%.

Must Read: What the Collapse of the OPEC Cartel Means for Oil Prices

Here's what analysts said about the OPEC news.

JPMorgan Energy Team (Nov. 26 note including Kinder Morgan)

We highlight KMI shares as an attractive destination in times of volatility given Kinder's impressive record of growth throughout market cycles, a testament to KMI's industry-leading management, in our view. As the third-largest US energy company, we believe KMI's scale, diversification and leverage to the significant energy infrastructure build-out surrounding unconventional production makes Kinder a core holding.

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BMO Capital Markets' U.S. and U.K. oil and gas analysts (Nov. 27 note)

While this outcome was largely expected by the market, the lack of any reassurance that the group would consider reconvening for a special meeting before June clearly signals that Saudi Arabia and Kuwait are not prepared to accommodate more hawkish members of the cartel (or Russia) and instead tolerate lower oil prices.

We believe that Brent crude oil prices will likely test the $70/bbl level (West Texas Intermediate prices in the mid-$60s/bbl) over the coming weeks as the speculative long position in crude oil continues to be unwound. We do not believe that oil prices are sustainable at these levels longer term as the non-OPEC industry is very clearly built on expectations of oil prices greater than $80/bbl; however, until economic growth improves outside of the U.S. and/or supply falls we do not see the sell-off abating.

We recommend that investors remain on the sidelines in the near term. December is not expected to offer much of a respite from the selling. Better opportunities are likely to emerge in the new-year, in our view.

David Thomas, Credit Suisse (European Oilfield Services; Nov. 28 note)

We believe there can be little doubt that lower oil prices would lead to budget cuts and lower upstream capital investments by oil and gas companies (from IOC's to NOC's). But we note that the only double digit %age drop in E&P capex occurred in 2009 when there was a 3mbd YoY decline in demand as a result of the financial crisis, when oil prices bottomed in the mid-$30's/bbl. The current macro-economic environment is completely different now, and all surveys point to at least 1mbd demand growth in 2015. In our view 2015 E&P capex cuts are more likely to be around 5% YoY, and may be partly ameliorated by increased spend in midstream and downstream. So it's not all doom and gloom we feel.

We believe that if oil prices were to continue to fall, there would be little differentiation in OFS stock performance in the near-term as investors allocate funds to other sectors. But once oil markets stabilise (we make no guesses when and at what level), we expect to see some relative performance differences emerging across sub-sectors. Factors which we expect will drive this are (i) capital intensity (asset-heavy vs asset-light) (ii) balance sheet strength and (iii) backlog quality and longevity.

TheStreet Ratings team rates KINDER MORGAN INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate KINDER MORGAN INC (KMI) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, expanding profit margins, good cash flow from operations and compelling growth in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 6.5%. Since the same quarter one year prior, revenues rose by 14.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry average. The net income increased by 15.0% when compared to the same quarter one year prior, going from $286.00 million to $329.00 million.
  • 43.16% is the gross profit margin for KINDER MORGAN INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 7.66% is above that of the industry average.
  • Net operating cash flow has increased to $1,289.00 million or 21.60% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -1.84%.

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-Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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