Ord Minnett makes changes to its price estimates for oil, increasing long-term Brent forecast to US$60/bbl. These changes largely result in reductions to near-term earnings estimates but higher valuations for ASX listed stocks.
Following recent price performance the broker now considers the sector fully valued. In most parts, consensus has caught up with Ord Minnett's forecasts, signalling the upgrade cycle is probably over. Within the sector Ord Minnett retains a preference for WorleyParsons ((WOR)) and Senex Energy ((SXY)) based on growth and value, upgrading the latter to Accumulate.
Origin Energy ((ORG)) is also preferred because of an ongoing de-leveraging process. Ord Minnett lowers its recommendation on Oil Search ((OSH)) to Hold based on valuation but remains positive about the outlook and strong growth prospects.
Citi also recently upgraded Senex Energy to Neutral/High Risk because of higher reserve forecasts for the Cooper. The broker now considers the stock to be fairly valued although there is upside for investors that take an optimistic view on long-term oil prices.
SXY Price at posting:
41.0¢ Sentiment: Buy Disclosure: Held
