While the expected rally, as implied by the average 12-month price targets, may reflect a constant decline in shares, it also shows analysts are standing pat with their bullish views. Buy recommendations for the S&P 500 Energy Index are near previous highs, Levkovich said. This implies that energy’s sell-side hasn’t capitulated to market concerns as seen in 2009 or 2016.
Investors have urged firms to increase shareholder-friendly initiatives such as share buybacks versus dilutive equity raises and funding new wells. And many E&Ps have buckled under the pressure:
- Permian Basin-focused Pioneer Natural Resources Co. recently gifted investors a dividend that’s 22 times larger than what it paid out during shale’s heyday half a decade ago.
- Peer Diamondback Energy Inc. pledged to buy back $2 billion in stock and sell some fields.
- Marathon Oil Corp. more than doubled its share buyback program to $1.5 billion
- WPX Energy Inc. said it will repurchase up to $400 million of its stock over two years while maintaining its capital spending plan for 2019.
When Will They Come Back?
Still, it’s unclear what could spark investor interest again.
“We along with others struggle to perceive which catalysts encourage the Street to step back in to the sector, short of a major supply disruption,” Citi added in its note while also highlighting a less buoyant earnings profile for the group.
Last month, Jefferies’ strategy team cut their energy rating: “The one sector we just can’t seem to get right is energy.”
One respite for the sector could be a weaker U.S. dollar. “In the past, dollar weakness has been a key support for commodities including energy,” Levkovich said. “But, we may need to see some better appetite for cyclicals in general which might require improved capex trends, something we do not expect in the next couple of months.”
This story provided by Bloomberg News.